UK government closes repo tax loophole; legislation will backdate to October 2007

A loophole in the UK Corporation Tax Act 2009 which could allow firms to avoid paying tax on manufactured payments in repo transactions is set to be closed by the UK government.

In a statement, financial secretary to the Treasury Stephen Timms added that the proposal would backdate to 1^st October 2007, when the original legislation was introduced. This was to “ensure that there is no possibility of adverse consequences for the Exchequer”, Timms explained.

The loophole involved firms not taking manufactured payments into account for tax purposes if the securities involved in the repo transaction were not present on their balance sheets. The amendment will require manufactured payments to be included when calculating profits chargeable to corporation tax.

However, the statement from Timms stressed: “The legislation cannot result in any company being charged tax on more than its actual profits but prevents the possibility of relief for artificial losses.”