INTM550540 - Hybrids: definition of key terms: payment and quasi-payment, securitisation companies

Payment

A payment is any transfer of money or money’s worth in relation to which an allowable deduction would arise in calculating the taxable profits of the payer for a taxable period, if Part 6A (or a non-UK equivalent of Part 6A) did not apply.

Quasi-payment

An amount is a quasi-payment if

  • an allowable deduction would arise in calculating the taxable profits of the payer for a taxable period, if Part 6A (or a non-UK equivalent of Part 6A) did not apply, and
  • making the relevant assumptions, it is reasonable to expect that ordinary income would arise to one or more persons as a result of the circumstances giving rise to the deduction

The relevant assumptions

The relevant assumptions are

  • any payee is assumed to be a distinct and separate person if it would be treated as such under the law of the payer jurisdiction
  • any payee or potential payee is assumed to have adopted the same accounting approach as the payer in respect of the circumstances giving rise to the deduction
  • any payee or potential payee is assumed to be resident for tax purposes in the payer jurisdiction, and
  • any payee or potential payee is assumed to be carrying on a business in the payer jurisdiction and the circumstances giving rise to the payer’s deduction arise in connection with that business

Deductions deemed to arise for tax purposes under the law of the payer jurisdiction are not quasi-payments if the circumstances giving rise to the deduction do not involve the creation or amendment of economic rights existing between the payer and a payee.

In most instances a payment will also fall within the definition of a quasi-payment.

A simple example of a quasi-payment would be an interest free convertible loan note being treated as issued at a discount that qualifies for finance relief (see example at INTM551280). The deduction arises from the terms of the loan note, which creates economic rights between the payer and payee.

In contrast, a deduction granted by a territory for an amount of deemed interest on an interest free loan would not be a quasi-payment (see example at INTM551270). The deemed deduction does not arise from the terms of the existing loan nor from any amendment to it. It arises from the operation of the territory’s tax rules.

Securitisation companies

For the avoidance of doubt, payments or quasi-payments could arise to an entity which is charged to corporation tax under Regulation 14 of The Taxation of Securitisation Companies 2006 (SI 2006/3296). This could occur where transactions giving rise to the Retained Profit (on which the CT charge is calculated) represent an allowable deduction.