CFM44050 - Deemed loan relationships: alternative finance: purchase and resale arrangements

Purchase and resale arrangement: conditions

CTA09/S503 describes a purchase and resale arrangement. A purchase and resale arrangement is one where two persons enter into an arrangement that satisfies the following conditions:

• One person (‘the first purchaser’) buys an asset and sells it to another person (‘the second purchaser’).
• The sale must either immediately follow the purchase, or if the first purchase is a financial institution, then the asset must have been purchased by the first purchaser for the purpose of entering into an alternative finance return arrangement. This allows financial institutions that may hold a stock of commodities for the purpose of entering into alternative finance return arrangements to qualify for loan relationship treatment.
• All or part of the sale price paid by the second purchaser is paid after the sale - so there is, in whole or part, deferred sale consideration.
• The sale price paid by the second purchaser is higher than the amount paid by the first purchaser.
• The difference between the sale price paid by the second purchaser and the purchase price of the first purchase equates in substance to the return on an investment of money at interest. A purchase and resale arrangement should, in accordance with GAAP, be presented in the company accounts of the first and second purchasers in the same way as a conventional loan.
• At least one of the parties to the arrangement must be a financial institution (CFM44030) or the arrangement must be a regulated electronic system facilitated arrangement (CFM44035). So, the financial institution or other relevant party may be the party receiving or paying the alternative finance return, just as they would receive interest as a creditor or pay interest as a debtor under conventional loans.

CFM44060 explains the tax consequences of the arrangement.