Finance Act 2019
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Amendment of Part 28 of Principal Act (purchase and sale of securities) | ||
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34. Part 28 of the Principal Act is amended by inserting the following Chapter after Chapter 2: | ||
“Chapter 3 | ||
Stock borrowing and repurchase agreements | ||
Interpretation (Chapter 3) | ||
753A.In this Chapter— | ||
‘Act of 1999’ means the Stamp Duty Consolidation Act 1999; | ||
‘building society’ has the same meaning as it has in Chapter 4 of Part 8; | ||
‘equivalent stock’— | ||
(a) in relation to a stock borrowing, has the same meaning as it has in section 87 of the Act of 1999, and | ||
(b) in relation to a repurchase agreement, has the same meaning as it has in section 87A of the Act of 1999; | ||
‘financial transaction’ means a transaction comprising— | ||
(a) a stock borrowing or a stock transfer in respect of which— | ||
(i) the stock seller or stock buyer is a qualifying institution, and | ||
(ii) the other party is not an individual or a partnership, | ||
and | ||
(b) the corresponding stock return for that stock borrowing or stock transfer, | ||
where it is reasonable to consider that the transaction, and all associated agreements, arrangements or transactions, are equivalent to a transaction or agreement for the lending of money, or money’s worth, at interest; | ||
‘investment undertaking’ has the same meaning as it has in Chapter 1A of Part 27; | ||
‘lender’ has the same meaning as it has in section 87 of the Act of 1999; | ||
‘manufactured payment’ means a payment by a stock buyer to a stock seller, whether made directly or indirectly, to reimburse that stock seller for any distribution or interest arising or accruing to the stock buyer as a consequence of the transfer of the qualifying securities as part of a financial transaction; | ||
‘pension scheme’ has the same meaning as it has in Chapter 4 of Part 8; | ||
‘qualifying institution’ means— | ||
(a) a company within the charge to corporation tax, | ||
(b) an investment undertaking, | ||
(c) a pension scheme, | ||
(d) a scheme, the income of which, in whole or in part, is exempt from income tax under section 790B, | ||
(e) a person whose income, in whole or in part, is exempt— | ||
(i) from income tax, pursuant to section 207(1)(b), or | ||
(ii) corporation tax, by virtue of section 207(1)(b) as it applies for the purposes of corporation tax under section 76(6), | ||
or | ||
(f) a building society; | ||
‘qualifying securities’ means— | ||
(a) securities that are interest bearing, discounted or premium-bearing, or | ||
(b) stocks or shares that are quoted on a recognised stock exchange; | ||
‘repo seller’ has the same meaning as it has in section 87A of the Act of 1999; | ||
‘repo buyer’ has the same meaning as it has in section 87A of the Act of 1999; | ||
‘repurchase agreement’ means a repurchase agreement (within the meaning of section 87A of the Act of 1999) in respect of qualifying securities; | ||
‘security’ has the same meaning as it has in Chapter 2 of Part 6; | ||
‘stock borrower’ has the same meaning as it has in section 87 of the Act of 1999; | ||
‘stock borrowing’ means a stock borrowing (within the meaning of section 87 of the Act of 1999) in respect of qualifying securities; | ||
‘stock buyer’ means— | ||
(a) in relation to a stock borrowing, a stock borrower, and | ||
(b) in relation to a repurchase agreement, a repo buyer; | ||
‘stock return’— | ||
(a) in relation to a stock borrowing, has the same meaning as it has in section 87 of the Act of 1999, and | ||
(b) in relation to a repurchase agreement, has the same meaning as it has in section 87A of the Act of 1999, | ||
in each case subject to the modification that a reference in the definition of that term in the section concerned to ‘stock’ shall be construed as a reference to qualifying securities; | ||
‘stock transfer’, in respect of a repurchase agreement, means a stock transfer (within the meaning of section 87A of the Act of 1999); | ||
‘stock seller’ means— | ||
(a) in relation to a stock borrowing, a lender, and | ||
(b) in relation to a repurchase agreement, a repo seller. | ||
Application | ||
753B.(1) This Chapter shall apply to a financial transaction, entered into on or after 1 January 2020, other than— | ||
(a) a financial transaction— | ||
(i) pursuant to which a stock buyer holds qualifying securities or equivalent stock, and | ||
(ii) as a consequence of which a distribution arises or accrues to that stock buyer from those qualifying securities or that equivalent stock, | ||
except where— | ||
(I) the stock seller would be entitled— | ||
(A) to a repayment of any tax withheld from the interest, or | ||
(B) to receive the distribution without the deduction of tax, | ||
under any provision of the Tax Acts or under arrangements made with another territory having the force of law by virtue of section 826(1), had that stock seller not entered into the financial transaction and received that distribution directly, and | ||
(II) the distribution is in the form of cash, | ||
(b) a financial transaction— | ||
(i) pursuant to which a stock buyer holds qualifying securities, and | ||
(ii) as a consequence of which interest arises or accrues to that stock buyer from those securities, | ||
except where— | ||
(I) the stock seller would be entitled— | ||
(A) to a repayment of any tax withheld from the distribution, or | ||
(B) to receive the interest without deduction of tax, | ||
under any provision of the Tax Acts or under arrangements made with another territory having the force of law by virtue of section 826(1), had that stock seller not entered into the financial transaction and received that interest directly, or | ||
(II) neither the stock seller nor the stock buyer would be entitled to receive a payment of interest without deduction of tax under section 246 and, where such tax is deducted, neither the stock seller nor the stock buyer would be entitled to a repayment of any such tax withheld or any part thereof. | ||
(2) Where this Chapter applies, in applying the Tax Acts and the Capital Gains Tax Acts to a financial transaction, regard shall be had to the substance of the financial transaction, rather than to its legal form, such that— | ||
(a) the disposal and subsequent reacquisition of qualifying securities, or equivalent stock thereof, pursuant to the financial transaction shall not be treated as a disposal or an acquisition for the purposes of the Capital Gains Tax Acts, | ||
(b) any income, profits or gains, including fees, margins, profits or other financial gain arising or accruing to a stock seller or a stock buyer, either directly or indirectly, pursuant to— | ||
(i) the financial transaction, and | ||
(ii) in a case in which the financial transaction comprises a stock transfer, the corresponding repurchase agreement, | ||
shall be treated as if that income, those profits or those gains, as the case may be, arose from the lending of money, or money’s worth, at interest, and | ||
(c) any manufactured payment shall be— | ||
(i) deductible in accordance with section 753C(2) and (3), and | ||
(ii) charged to tax in accordance with section 753C(5) and (6). | ||
Payment and receipt of dividends or interest and manufactured payments under a stock borrowing or repurchase agreement | ||
753C.(1) In this section, ‘specified amount’ refers to an amount of interest or distribution arising or accruing to a stock buyer in respect of qualifying securities, or equivalent stock, held by the stock buyer pursuant to a financial transaction. | ||
(2) Subject to subsection (3), in charging a specified amount to tax— | ||
(a) a deduction shall be available for any corresponding manufactured payment paid, and | ||
(b) such deduction shall not exceed the specified amount received following the application of Schedule 24, but prior to the application of Schedule 2. | ||
(3) A manufactured payment shall not be deductible— | ||
(a) where the stock buyer is exempt from tax in respect of the corresponding specified amount, | ||
(b) where no amount of tax payable, within the meaning of section 959A, would arise in respect of the corresponding specified amount following the application of Schedule 24, or | ||
(c) against any amounts other than the corresponding specified amount. | ||
(4) Where the specified amount is in excess of the amount of any corresponding manufactured payment paid, then, notwithstanding Part 2, section 129, section 129A or section 138, that excess amount shall be charged to tax pursuant to section 753B(2)(b). | ||
(5) Subject to subsection (6), a stock seller shall be charged to tax in respect of a manufactured payment arising or accruing as if the corresponding specified amount had been received directly by that stock seller. | ||
(6) Where the amount of the manufactured payment made by the stock buyer is in excess of the amount of the corresponding specified amount received by the stock buyer, net of any foreign withholding tax but prior to the application of Schedule 2, then the stock seller shall be chargeable to tax under Case IV of Schedule D in respect of that excess amount. | ||
Refund of dividend withholding tax | ||
753D.(1) This section shall apply to a financial transaction where— | ||
(a) a distribution is paid to a stock buyer pursuant to a stock borrowing or the repurchase agreement in respect of a stock transfer, | ||
(b) the corresponding stock return for that stock borrowing or stock transfer has taken place, | ||
(c) the distribution received by the stock buyer pursuant to the stock borrowing or repurchase agreement was subject to dividend withholding tax, | ||
(d) the stock seller would have been entitled— | ||
(i) to a repayment of the dividend withholding tax referred to in paragraph (c), or | ||
(ii) to receive the distribution without deduction of that dividend withholding tax, | ||
had that stock seller not entered into the financial transaction and received that distribution directly, | ||
(e) the stock seller has not been compensated by the stock buyer, or a party connected to that stock buyer, for the dividend withholding tax referred to in paragraph (c), or any part of that dividend withholding tax, and | ||
(f) the stock buyer is not entitled under— | ||
(i) section 831, | ||
(ii) an arrangement having the force of law by virtue of section 826(1), | ||
(iii) Schedule 24, or | ||
(iv) any other provision (including under the law of a territory other than the State), | ||
to a repayment, credit, deduction or other relief for the dividend withholding tax referred to in paragraph (c) or any part of that dividend withholding tax. | ||
(2) Where this section applies, the stock seller may make a claim for a repayment of the dividend withholding tax referred to in subsection (1)(c), subject to providing— | ||
(a) confirmation that the stock buyer received a distribution under a stock borrowing or repurchase agreement, and that dividend withholding tax was withheld from the amount of that distribution, | ||
(b) a signed declaration from the stock buyer that the stock seller is not entitled to any repayment, credit, deduction or similar in respect of that dividend withholding tax, | ||
(c) confirmation that the stock seller— | ||
(i) was the owner of the qualifying securities (including any equivalent stock)— | ||
(I) immediately prior to the financial transaction, and | ||
(II) immediately following the financial transaction, | ||
(ii) would have received the distribution directly had the stock borrowing or repurchase agreement not been entered into, and | ||
(iii) would have been entitled to— | ||
(I) a repayment of that dividend withholding tax, or | ||
(II) to receive the distribution without the deduction of that dividend withholding tax, | ||
had the distribution been received directly by that stock seller, | ||
(d) a statement referred to in section 172I(1) or (1A), | ||
(e) the appropriate declaration made under Schedule 2A, and | ||
(f) any other information or documentation the Revenue Commissioners may consider appropriate to validate the claim. | ||
Anti-avoidance | ||
753E.(1) In this section— | ||
‘the Acts’ means— | ||
(a) the Tax Acts, | ||
(b) the Capital Gains Tax Acts, | ||
(c) the Act of 1999, and the enactments amending or extending that Act, and | ||
(d) the Value-Added Tax Consolidation Act 2010 , and the enactments amending or extending that Act, | ||
and any instrument made thereunder and any instrument that is made under any other enactment and which relates to those Acts; | ||
‘tax advantage’ has the same meaning as it has in section 811C; | ||
‘transaction period’ means the period after— | ||
(a) qualifying securities have been obtained from a lender under a stock borrowing, or | ||
(b) a stock transfer has taken place under a repurchase agreement, | ||
but before the corresponding stock return has taken place. | ||
(2) This Chapter shall not apply to a financial transaction, unless it would be reasonable to consider that the financial transaction— | ||
(a) has been undertaken for bona fide commercial reasons, and | ||
(b) does not form part of any arrangement or scheme of which the main purpose, or one of the main purposes, is the avoidance of tax. | ||
(3) Notwithstanding subsection 753B(2)(a), when determining the capital, voting rights or entitlement to assets, whether on a winding up or in any other circumstances, held by a party to a financial transaction for the purposes of any provision of the Acts during a transaction period, regard shall be had to the— | ||
(a) capital, | ||
(b) voting rights, and | ||
(c) entitlement to assets, whether on a winding up or in any other circumstances, | ||
of each party to the financial transaction concerned, as the case may be— | ||
(i) immediately prior to the time at which— | ||
(I) qualifying securities have been obtained from the lender under the stock borrowing concerned, or | ||
(II) the stock transfer has taken place under the repurchase agreement concerned, | ||
as the case may be, and | ||
(ii) during the transaction period, | ||
such that the capital, voting rights or entitlement to assets, whether on a winding up or in any other circumstances, held by that party for that transaction period shall be the amount that does not give rise to a tax advantage for that party to the financial transaction or a person connected to that party. | ||
Records | ||
753F.(1) Subject to subsection (2), a qualifying institution shall maintain a separate record of each financial transaction, for a period of 6 years from the date of the stock return concerned, which shall include, at a minimum— | ||
(a) the name and address of both parties to the financial transaction, | ||
(b) the agreement underlying the financial transaction and any documentation in respect of any associated agreements, arrangements or transactions, | ||
(c) the type, nominal value, description and amount of the qualifying securities, including any equivalent stock, transferred under the financial transaction, | ||
(d) the date on which— | ||
(i) qualifying securities have been obtained from the lender under the stock borrowing concerned, or | ||
(ii) the stock transfer has taken place under the repurchase agreement concerned, | ||
as the case may be, | ||
(e) the date of the stock return, | ||
(f) details of any manufactured payments arising pursuant to the financial transaction, | ||
(g) details of any interest rate or rate of return applicable to the financial transaction, and | ||
(h) details of the fees, profits, margins or other financial gain accruing, charged or expected to arise pursuant to the financial transaction. | ||
(2) Where a qualifying institution is— | ||
(a) an investment undertaking, | ||
(b) a pension scheme, or | ||
(c) a scheme referred to in paragraph (d) of the definition of ‘qualifying institution’ in section 753A, | ||
the record referred to in subsection (1) shall be maintained by a person who is authorised to act on behalf of, or for the purposes of, the qualifying institution and habitually so acts in that capacity.”. |