Taxation on corporate debt rules out for consultation

Revised rules affecting the way corporate debt and derivative contracts are taxed have now been drafted and are out for a brief consultation, in a bid to avoid double taxation and curb potential abuse

HMRC has issued draft legislation for consultation following amendments to the Change of Accounting Practice Regulations 2004 (COAP) covering the taxation of corporate debt and derivative contracts

The amendments provide specific tax treatment for loan relationships and derivative contracts on a change of accounting policy.

The regulations will be effective for periods of accounting beginning on or after 1 January 2016.

The changes were first announced in Budget 2013 as part of a review of corporate tax rules governing the taxation of corporate debt and derivative contracts.

The COAP Regulations need to be amended to avoid double taxation or double relief as a result of changes to Part 5 and Part 7 of Corporation Tax Act 2009 (CTA 2009) governing the taxable position on profits and losses from loan relationships. Amounts may otherwise be brought into account under both the new Part 5 or Part 7 rules and under the COAP Regulations.

The amendments will prevent further amounts bring brought into account under the 10-year spreading rules where those amounts are amounts within other comprehensive income at the commencement of the new Part 5 and Part 7 rules.

HMRC states in a briefing memorandum issued with the draft SI that ‘this amendment will ensure that the rules operate as intended, and will ensure that amounts are taxed or relieved once and only once’.

The draft provides for a consequential amendment from legislation introduced by Finance (No. 2) Act 2015 for the taxation of corporate debt and derivative contracts.

The legislation will be enacted in a statutory instrument, the Loan Relationships and Derivative Contracts (Change Of Accounting Practice) Regulations 2016.

The closing date for comments on the technical consultation is 4 November 2016.

The policy paper, Draft legislation: changes to the Change of Accounting Practice Regulations 2004, is available here

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