Securitization companies are used by some businesses to raise funds by issuing debt to the market and holding assets as security. The transactions depend on the quality of the debt issued and this in turn depends on the rating given by the credit rating agencies.
When International Accounting Standards became a requirement for certain companies in the UK in 2005 the effect of using these standards was to make the accounting results and tax profits of securitization companies more volatile. This made it more difficult for a suitable credit rating to be assigned to the debt and therefore created a problem for companies raising funds through the use of securitization companies.
To deal with this problem the government introduced specific legislation in 2005 for securitization companies. This created the ‘interim regime’ permitting those companies to ignore the accounting changes when computing their corporation tax liabilities. Also some securitization companies do not fall within either the interim or permanent securitization regimes and are taxed under the normal tax rules.
The interim regime has previously been extended twice, but was due to expire by 1 January 2017. There are however a relatively small number of companies that still fall within the interim regime with securitized assets with a life of 25 years or more. Consequently these companies would be negatively impacted by the change in their tax treatment after expiry of the interim regime.
The UK government is therefore introducing further measures to extend the interim regime for those companies who wish to continue to use it. The regulations to extend the period of application of the interim regime are likely to come into force from December 2016 and are to apply to accounting periods ending before 1 January 2037.