Tax and Duty Manual Part 04-06-13 – Tax Treatment of Stock Lending and Sale and Repurchase (Repo) Transactions – has been updated to reflect the Finance Act 2019 provisions relating to stock lending and repo transactions.
This manual sets out the corporation tax treatment, for certain stock lending and repo transactions. Stock lending and repo transactions involve the temporary transfer of stocks or securities from one party to another with a simultaneous commitment to reverse the transaction at some point in the future.
The difference between a stock loan and a repo transaction is that in a repo contract there is an agreed return date whereas in a stock loan contract there is no pre-agreed return date.
There are two important aspects to stock lending and repo transactions for tax purposes:
I. Transfer of Title
A key feature of the transactions is that a transfer of legal title occurs which is subsequently reversed on completion. Taxation of these transactions based on the strict legal form would result in a charge to Capital Gains Tax or Income/Corporation tax. Notwithstanding this legal form, the substance is essentially one of lending.
II. Income Receipts/Payments
Where stock is the subject of the loan/repo, the borrower is normally entitled to any dividend/interest payments made because a transfer of legal title occurs so that the stock is held in the borrower’s name. However, the borrower will normally be required to reimburse the lender for any such dividend/interest payments. This compensating payment is termed a “manufactured payment”.
The full document is available at https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-06-13.pdf