D6.111 Reorganisations involving qualifying corporate bonds—main rules
There are specific provisions which apply to reorganisations of share capital where either the original shares or the new shares are qualifying corporate bonds (QCBs). For the definition of what is a QCB, see C2.820.
The special rules for reorganisations involving QCBs apply when:
(a) there is a reorganisation that falls within the statutory definition (D6.102)1, and
(b) the original holding (the 'old asset') is a QCB which is exchanged for a holding (the 'new asset') which is not a QCB (or vice versa)2
The provisions modify the normal rules applying to a reorganisation etc. Broadly, they disapply the 'no disposal' rule (D6.103) such that if the:
(i) old asset is a QCB , it is treated as being disposed of for market value. However, as a QCB is not chargeable, any gain (or loss) is exempt. In addition, the new asset is deemed to have been acquired at the time of the reorganisation for market value
(ii) new asset is a QCB, the old asset is treated as being disposed of at the date of the reorganisation. However, any gain calculated is 'frozen' until there is a subsequent disposal of the QCB
These are explained in further detail below.
The purpose behind these rules is to prevent companies exploiting the general provision that any gain on a disposal of a QCB is not chargeable (and similarly, any loss is not allowable). See C2.821.
Without any specific legislation, companies could simply exchange shares in