The impact of the pandemic may necessitate a financial restructuring of a company’s liabilities. Debt release exemptions may be required to avoid adverse tax consequences. Releases of loan relationships which existed before 1 January 2016 must qualify for an exemption to avoid taxable profits, but for newer debts an exemption is necessary only if the release results in an accounting profit. Where creditors undertake a ‘debt for equity’ swap, then the accounting treatment, the terms attaching to the shares and when the debt came into existence need to be considered. Releases of trade or property business debts follow the loan relationship exemptions, but unpaid management expenses may result in a clawback.
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The impact of the pandemic may necessitate a financial restructuring of a company’s liabilities. Debt release exemptions may be required to avoid adverse tax consequences. Releases of loan relationships which existed before 1 January 2016 must qualify for an exemption to avoid taxable profits, but for newer debts an exemption is necessary only if the release results in an accounting profit. Where creditors undertake a ‘debt for equity’ swap, then the accounting treatment, the terms attaching to the shares and when the debt came into existence need to be considered. Releases of trade or property business debts follow the loan relationship exemptions, but unpaid management expenses may result in a clawback.
If you or your firm subscribes to Taxjournal.com, please click the login box below:
If you do not subscribe but are a registered user, please enter your details in the following boxes:
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