Taxes Consolidation Act 1997 Schedule 25A paragraph 3

Effect of repurchase agreement

Paragraph 3 prevents companies from artificially meeting the shareholding requirement for the section 626B participation exemption by temporarily acquiring shares under a repurchase agreement.

• A repurchase agreement is an arrangement where a person transfers shares to another party subject to an obligation or option for the original owner (or a connected person) to buy them back.
• Where a company transfers shares under a repurchase agreement, the original owner is treated as continuing to hold the shares, and the interim holder is treated as not holding them, for the purposes of the section 626B shareholding test.
• This prevents a company from inflating its shareholding percentage to reach the required threshold by temporarily acquiring shares that it is obliged to return.
• If the original owner or a member of the same 51 per cent group reacquires the shares before the repurchase agreement period ends, the deeming rule ceases to apply to those shares from that point.