HMRC Unveils New Regulations For Securitisation Companies

by Amanda Banks, Tax-News.com, London

03 January 2008

HMRC has issued the following sets of regulations affecting securitisation companies, which came into force in December 2007.

The Taxation of Securitisation Companies (Amendment) Regulations 2007

These regulations make a number of amendments to the 2006 regulations. They came into force on 27 December 2007, and have effect for periods beginning on 1 January 2007 and current on 3 December 2007. The regulations:

• Insert a new definition of ‘financial asset’, which now excludes derivatives over shares and land, and convertible instruments
• Extend the definition of ‘intermediate borrowing company’ to include a company that is a creditor to a partnership that holds financial assets
• Amend the definition of an ‘asset-holding company’ and an ‘intermediate borrowing company’ to refer to the ‘initial’ liabilities owed by those companies, in order to allow companies which hold amortising debt to come within the regulations
• Define the activities of a ‘warehouse company’ as a ‘warehouse arrangement’, and amends the meaning of ‘retained profit’ to include amounts retained under a warehouse arrangement
• Insert a new Regulation 13A to prevent a securitisation company electing both for the 2006 regulations to apply to it, and to elect out of the extension of section 83 FA 2005
• Disapply paragraphs 17 and 18 of Schedule 9 of Finance Act 1996 to companies within the 2006 regulations.

The Securitisation Companies (Application of Section 83(1) of the Finance Act 2005: Accounting Standards) Regulations 2007

These regulations extend the application of section 83 Finance Act 2005 so that it applies to accounting periods ending after 1 January 2008 and before 1 January 2017.

They came into force on 27 December 2007. The extension applies to companies that are within section 83 at 1 January 2008, either as party to a capital market arrangement or a warehouse arrangement which began before that date.

Companies that continue to be within section 83 will continue to be taxed on the basis of old UK GAAP. However, a company can elect out of the extension of section 83, in which case it will be taxed on the basis of its statutory accounts.

A company that elects out of section 83, or one to which section 83 ceases to apply, for example, because it ceases to meet the conditions in section 83, must calculate transitional adjustments in accordance with the Change of Accounting Practice Regulations 2004, to be spread over the ten years beginning with the first period in which section 83 ceases to apply.

The Taxation of Insurance Securitisation Companies Regulations 2007

These regulations apply to an insurance special purpose vehicle (ISPV) within the meaning of the Financial Services Authority’s Insurance Prudential Sourcebook.

They came into force on 28 December 2007, and have effect for periods beginning on 1 January 2007, and current on 4 December 2007.

Where an ISPV either issues notes itself to third party investors as part of a capital market arrangement, or is lent the proceeds of a note issue by a note-issuing company or an intermediate borrowing company within the 2006 regulations, it will be taxed on the basis of its accounting profit or loss computed in accordance with UK GAAP as it stood at 31 December 2006, but without the application of FRS26.

As with the 2006 regulations, certain corporation tax rules on distributions, group relief, intra-group transfers, loan relationships and derivative contracts are disapplied in relation to ISPVs.

The Taxation of Securitisation Companies (Amendment No.2) Regulations 2007

These regulations amend the 2006 regulations so that a note-issuing company and an intermediate borrowing company in those regulations include a company that has a creditor relationship with an insurance securitisation company. They came into force on 28 December 2007.

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