Q&As

What is the correct way to apply Condition C in section 162 of the Corporation Tax Act 2010 in the context of working out whether bonds issued in a tap issue are QCBs? If the bonds are subscribed at a premium, can that premium be taken into account in determining whether the interest exceeds a reasonable commercial return on the new consideration lent? Alternatively, is the correct approach to look at the overall effective return on the subscription amount?

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Last updated on 08/10/2019

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  • What is the correct way to apply Condition C in section 162 of the Corporation Tax Act 2010 in the context of working out whether bonds issued in a tap issue are QCBs? If the bonds are subscribed at a premium, can that premium be taken into account in determining whether the interest exceeds a reasonable commercial return on the new consideration lent? Alternatively, is the correct approach to look at the overall effective return on the subscription amount?

What is the correct way to apply Condition C in section 162 of the Corporation Tax Act 2010 in the context of working out whether bonds issued in a tap issue are QCBs? If the bonds are subscribed at a premium, can that premium be taken into account in determining whether the interest exceeds a reasonable commercial return on the new consideration lent? Alternatively, is the correct approach to look at the overall effective return on the subscription amount?

We understand that a further issue of Sterling (fixed-rate?) bonds is proposed. The bonds are to be commercially fungible with existing issues of fungible (fixed-rate) bonds by the same issuer. This means that they must carry the same interest rate even though market rates have fallen since the earlier tranches were issued. That would explain the commercial need to issue the later tranche at a premium to justify what is now a higher-than-market interest rate. We assume that none of the relevant bonds are ‘deeply securities'>discounted securities’ within section 430 of the Income Tax (Trading and Other Income) Act 2005, and that the relevant holder of the bond is not a company subject to corporation tax.

If the new bonds are to be ‘qualifying corporate bonds’ (QCBs), their terms must satisfy section 117 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), which, for present purposes (see,

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Key definition:
Discounted securities definition
What does Discounted securities mean?

Shares or other instruments where the price paid is less than the amount payable on redemption. In the context of a rights issue or other secondary offer, shares are typically offered to existing shareholders at a discount to the prevailing market price of the shares as an incentive to engage in the offer.

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