CFM72580 – Corporate Finance Manual – HMRC Internal Manual


The corporate tax charge: the formula: ‘RP’ and ‘DS’

Regulation 14(1) establishes the basis on which a securitization company that meets the definitions in Regulations 4 to 9, and meets the conditions for payments and retained earnings, is taxed. In essence, he is taxable on the small amount of money kept in the business for his own account. In practice, most of the sums thus retained by securitization companies will sooner or later be distributed in the form of a dividend. The retention is effectively the same as the small “turn” or cash benefit which would in most cases have been reflected in the accounts if UK GAAP as it existed at 31 December 2004 had continued to apply. apply to these companies.

However, it is not sufficient to use the definition of “retained earnings” in Regulation 10, since it is essentially a “cash-in, cash-out” calculation. Under Regulation 10, the incoming and outgoing amounts will include dividends received and paid to another company in the securitization chain. Therefore, the formula in Regulation 14 excludes these amounts from the retained earnings on which the corporation is taxed. Regulation 14 also provides for a “catch-up” charge if the company pays out more profits in the form of dividends than it was taxed.

The taxable amount is the greater of RP-DS+D and Nil, plus the “specified amount”. These terms are defined in Articles 14(2) and 14(3). CFM72600 explains the “specified amount”.


RP is the retained earnings of the company during the accounting period. Retained earnings is defined in Regulation 10 (CFM72480).


DS is any distribution received from another securitization company which is a party to the same CMA and which is made from the retained earnings of the other company. However, where the dividend is received from another securitization company (or through a chain of securitization companies), the amount in question will have been taxed in the securitization company which paid the initial dividend and the DS definition thus avoids double counting of the same amounts.

Whether or not the amount of the dividend received from another securitization company is included in the “retained earnings” of the recipient company, as defined in Regulation 10 (CFM72480), will depend on the terms of the agreement on the relevant capital market and related transactions. If the dividend received is included in retained earnings, it will constitute or form part of ‘RP’, but will be deducted from RP in calculating the taxable amount; if the dividend received is not included in the retained earnings, it will still be deducted from the RP in the calculation of the taxable base, but not in such a way as to reduce the taxable base to less than zero. This is necessary to ensure that DS prevents double counting, as described above, in both scenarios.

If a securitization company receives a dividend from a company that is not a securitization company, the position will depend on whether or not the dividend received is included in the RP. If the dividend received is not included in the RP, it will not be subject to the charge under Regulation 14. If the dividend received is included in the RP, it will be subject to the charge under Regulation 14 notwithstanding the CTA09/S931A (which would be canceled in this case by the treatment of the beneficiary securitization company with regard to the regulations). For more information on the general tax consequences of distributions, see CTM15150.

In practice, it will be unusual for one securitization company to hold shares of another, and “DS” amounts will be rare.


Comments are closed.