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Repos: manufactured payments: requirement to deduct tax (ITA07/S925A-S925B)

ITA07/S925A-S925B activate the deduction of tax requirements for manufactured payments made by companies in creditor repos and received by companies in debtor repos. CFM74300 has more on manufactured payments.

Where a ‘lender� company has a creditor repo and any income arises on the securities that are initially sold, the lender is treated for the purpose of the tax deduction rules for manufactured payments in ITA07/PT15/CH9 (the successor provision to the tax deduction rules for manufactured payments in CTA10/Part 17) as paying to the borrower a manufactured payment representative of that income, on the same date that the income is payable.

Where a ‘borrowerâ€� company has a debtor repo and any income arises on the securities that are initially sold, the borrower is treated for the purpose of the reverse charge rules in Chapter 9 of Part 15 of ITA07 as receiving from the lender a manufactured payment representative of that income, on the same date on which the income is payable. »Ê¹ÚÌåÓýapp reverse charge rules in Chapter 9 of Part 15 of ITA are defined as

• Regulations under ITA07/S918(4) (reverse charge in respect of manufactured UK REITs dividends);
• ITA07/S920 (reverse charge in respect of foreign payers of manufactured interest); and
• ITA07/S923 (reverse charge in respect of foreign payers of manufactured overseas dividends).

»Ê¹ÚÌåÓýapp effect of ITA07/S925A-S925B is to treat all manufactured payments as deemed payments, to which the deduction of tax requirement is applied. »Ê¹ÚÌåÓýapprefore any real manufactured payments are ignored for the purposes of the tax deduction rules (ITA07/S925C).

»Ê¹ÚÌåÓýapp existing regulations relating to the deduction of tax from manufactured payments remain in force (such as SI 1993/2004, which concerns both the main deduction requirement and the reverse charge). See ITA07/S585.

Deemed manufactured payments: other points

• ITA07/S925A-S925B replace ICTA88/S737A for payments that are deemed to be made under arrangements coming into force on or after 1 October 2007 (see CFM74300).
• Section 737A treated a deemed manufactured payment as having been made when the repurchase price for the securities became due (see CFM74300). ITA07/S925A-S925B treat the payment as having been made on the same date on which the real income is payable.
• See CFM74300 regarding changes for taxpayers within the charge to income tax for repos entered into on or after 1 October 2007.