Debt Restructuring: Deemed Releases

In this article Paul Pritchard, Managing Director of our European Tax Advisory team discusses how the deemed release rules apply to transactions in debt rights.

This is an extract from Tax Journal, first published on June 17, 2021. The whole publication is available at https://www.taxjournal.com/articles/-debt-restructuring-deemed-releases.

“The impact of the pandemic may necessitate a financial restructuring of a company’s liabilities. As part of the plan, steps to restructure external debts could be caught by the deemed release rules. For example, a distressed group buys back its debt at a discount to the amount of the liability owed, or the creditor company acquires or otherwise becomes connected with the debtor company. To mitigate taxable deemed releases in significant corporate distress situations there must be an actual release within 60 days of the potential trigger. Awareness of the deemed release rules to take timely action to manage the risk is crucial. The corporate rescue relief disapplies the deemed release rule if the whole debt concerned is released. If there is a partial release, then the deemed release amount is reduced by the amount released. Care is needed when computing the deemed release amount to ensure sufficient debt is released to mitigate the deemed release amount. Deemed releases are relevant to loan relationships in CTA 2009 Part 5 and trading or property business debts in CTA 2009 Part 6.”