Summary
1.Section 44 and Schedule 15 amend the corporation tax rules on loan relationships that apply to impaired debts between connected companies. Under the current rules, where a company (“C”) acquires debt owed by a connected company (“D”) to a third party, which has been written down in value (“impaired”), an amount is taxable on D in respect of a “deemed release”. This deemed release is equal to the discount to the face value of the debt at which D acquires the debt. There is an exemption from this deemed release in certain corporate rescue situations. The amendments to these rules change the conditions under which exemption from a deemed release is available, for transactions occurring on or after 14 October 2009. They also ensure that releases of debt bought back that benefited from the new corporate rescue and debt for debt exemption will result in the discount being taxed on the debtor. Where the subsequent release involves a debt equity swap there is a further amendment that applies to releases made on or after 9 November 2009 to ensure such releases under a debt equity swap will also result in the discount being taxed on the debtor.