1. Modernising the taxation of corporate debt and derivatives Consultation open meeting 27 June 2013

2. Loan relationships open meeting 27.6.13 | 01/05/2015 | 2 Purpose Introductions Explanation of the consultation process Brief review of the consultation material To facilitate participation in the process

3. Loan relationships open meeting 27.6.13 | 01/05/2015 | 3 Agenda Introduction 1.Context 2.Aims 3.Timeline 4.Consultation process 5.Questions and discussion Break 6.The consultation document content 7.Questions and discussion

4. Loan relationships open meeting 27.6.13 | 01/05/2015 | 4 What’s the problem? 17 years old Loss of structural integrity Complexity Accountancy changes Commercial practice Tax avoidance

5. Loan relationships open meeting 27.6.13 | 01/05/2015 | 5 Policy drivers Simpler rules Appropriately aligned with commercial and accounting practice Legislation more useable Restoration of coherence and elimination of uncertainties Integrated anti-avoidance provisions

6. Loan relationships open meeting 27.6.13 | 01/05/2015 | 6 Consultation – general points A starting point, not an end point Collaborative process: if you have a better idea, let’s hear it An opportunity for all stakeholders We are interested in fiscal impacts, cost implications and other consequences – don’t ignore Chapter 15! Nothing in the consultation reflects on our view of existing disputes Transition

7. Loan relationships open meeting 27.6.13 | 01/05/2015 | 7 How you can take part Bilateral contacts Working Groups Formal Consultation (2013 and 2014) Balancing broad representation and detailed discussion

8. Loan relationships open meeting 27.6.13 | 01/05/2015 | 8 Working groups The framework Looking behind the accounts A unified regime? Anti-avoidance Connected Parties Intra-group Transfers Partnerships Debt restructuring Accounting issues Forex and Hedging Hybrids etc Bond funds Corporate streaming Andy Stewardson Tony Sadler Richard Daniel Chris Murricane Structure Groups and connections AccountingFunds

9. Loan relationships open meeting 27.6.13 | 01/05/2015 | 9 Working groups – what we need Joint membership: HMRC; rep bodies; individual companies; advisers; etc Membership by invitation, but volunteers welcome Representative of wider constituencies Wide practical experience – “wise heads” Manageable numbers Active participation - expect monthly meetings

10. Loan relationships open meeting 27.6.13 | 01/05/2015 | 10 Working groups – what will they do? Consider proposals and options Identify issues Develop solutions Review draft legislation But recommendations to ministers are for officials

11. Loan relationships open meeting 27.6.13 | 01/05/2015 | 11 Issues for Finance Bill 2014 Unallowable purpose rulesWorking Group 1 PartnershipsWorking Group 2 Index-linked giltsWorking Group 3 Bond fund rulesWorking Group 4

12. Loan relationships open meeting 27.6.13 | 01/05/2015 | 12 Indicative Timeline 2013 Draft FB2014 legislation Informal consultation Working groups Formal consultation JuneAugust Autumn Statement Summary of responses FB14 Comment period

13. Loan relationships open meeting 27.6.13 | 01/05/2015 | 13 Indicative Timeline 2014 FA 2014 Draft FB2015 legislation Informal consultation Working groups Formal consultation March July Autumn Statement Summary of responses April Budget? FB15 Comment period

14. Loan relationships open meeting 27.6.13 | 01/05/2015 | 14 Questions?

15. Loan relationships open meeting 27.6.13 | 01/05/2015 | 15 Consultation document - content

16. Loan relationships open meeting 27.6.13 | 01/05/2015 | 16 Working Group 1 – Andy Stewardson The framework Subject matter – role of accountancy – overriding the accounts – default approach - departures from the default Looking behind the accounts Cases where the accounts treatment of an instrument or transaction is influenced by the existence of other A unified regime? Is it worth it? Anti-avoidance A “regime TAAR” Updating the unallowable purpose rules

17. Loan relationships open meeting 27.6.13 | 01/05/2015 | 17 Working Group 2 – Tony Sadler Connected parties Intra-group transfers Partnerships Debt restructuring

18. Loan relationships open meeting 27.6.13 | 01/05/2015 | 18 Working Group 2: Connected parties Key departure from ‘following the accounts’ Two options Minimal change, mainly definition of Amortised Cost Basis More extensive change, retain denial of impairment, follow accounts on releases, anti-asymmetry rule Not hard and fast options – key issue, would the change be worth it?

19. Loan relationships open meeting 27.6.13 | 01/05/2015 | 19 Working Group 2: Group continuity Three possibilities Forward continuity Backward continuity No rules other than anti-asymmetry No preferred option at this stage

20. Loan relationships open meeting 27.6.13 | 01/05/2015 | 20 Working Group 2: Partnerships Better alignment of principles and mechanics Change in partnership interests Control Link with separate consultation on partnership taxation Finance Bill 2014

21. Loan relationships open meeting 27.6.13 | 01/05/2015 | 21 Working Group 2: Debt restructuring Section 322(4) – debt equity swaps; explicit ‘distress’ criteria for exemption from release? Sections 361-362 – deemed release rules broadly retained; impact of other possible changes (e.g. connected parties, partnerships)? Less need for clearances.

22. Loan relationships open meeting 27.6.13 | 01/05/2015 | 22 Working Group 3 – Richard Daniel Accounting issues Forex and hedging Hybrids and “special treatment” instruments

23. Loan relationships open meeting 27.6.13 | 01/05/2015 | 23 Working Group 3 Where are we now? Where do we do we want to be? What are we proposing? Follow ‘profit or loss’ Exclude non-trade forex by default … … with specific rules for hedges Repeal of the ‘Disregards’ Repeal of most of the ‘Alphabet Soup’ Scope of relief for Index-Linked Gilts How do we get there? Facts Scope Accounting Treatment

24. Loan relationships open meeting 27.6.13 | 01/05/2015 | 24 Working Group 3: Hedging relationships Hedges of forex risk (non-trade)Forex initially excluded, with specific rules to bring forex into account in a similar manner to the hedged risk. Designated cash flow hedgesFollowing amounts in profit or loss should give the desired result. Designated fair value hedgesProposed relaxation of CP debt rules should address the main issue at source. Undesignated hedgesPropose to follow accounts – tax volatility in line with the accounting treatment. Developments in accounting should ease some of the difficulties with FRS 26 / IAS 39.

25. Loan relationships open meeting 27.6.13 | 01/05/2015 | 25 Working Group 4 – Chris Murricane Bond funds Corporate streaming

26. Loan relationships open meeting 27.6.13 | 01/05/2015 | 26 Bond Fund Rules Chapter 3 of Part 6 CTA 2009 Aim to ensure that loan relationships held in funds are brought into tax Complicated & avoidance prone Proposal: largely repeal But keep anti-avoidance rules in some circumstances Finance Bill 2014

27. Loan relationships open meeting 27.6.13 | 01/05/2015 | 27 Bond Fund Rules What do we need to keep? Tightly-controlled funds. Offshore funds. Impacts on particular types of company (CFCs, life insurers)

28. Loan relationships open meeting 27.6.13 | 01/05/2015 | 28 Corporate streaming Chapter 3 of Part 4 of the Authorised Investment Funds (Tax) Regulations 2006, referred to as the “corporate streaming” rules. Issue: income in AIFs taxed at lower rate. Problem solved by tax rate convergence? In secondary legislation? Specific industry issues.

29. Loan relationships open meeting 27.6.13 | 01/05/2015 | 29 Questions?

30. Loan relationships open meeting 27.6.13 | 01/05/2015 | 30 Contacts Andy Stewardson0207 147 2600andy.stewardson@hmrc.gsi.gov.uk Tony Sadler 0207 147 2608tony.sadler@hmrc.gsi.gov.uk Richard Daniel03000 569 408richard.daniel@hmrc.gsi.gov.uk Chris Murricane0207 147 2818chris.murricane@hmrc.gsi.gov.uk

31. Loan relationships open meeting 27.6.13 | 01/05/2015 | 31 Thank you Andy Stewardson HM Revenue & Customs Room 3C/06 100 Parliament Street LondonSW1A 2BQ Telephone 0207 147 2600 Emailandy.stewardson@hmrc.gsi.gov.uk