Debt restructuring: presumed releases | FTI Council
In this article, Paul Pritchard, Managing Director of our European Tax Advisory Team, explains how deemed release rules apply to debt rights transactions.
This is an excerpt from Tax Journal, first published on June 17, 2021. The full publication is available at https://www.taxjournal.com/articles/-debt-restructuring-deemed-releases.
“The impact of the pandemic may require a financial restructuring of a company’s liabilities. Under the plan, measures to restructure external debts could be covered by the rules of deemed release. For example, a troubled group buys back its debt at a discount to the amount of debt owed, or the creditor company acquires or otherwise becomes linked to the debtor company. In order to mitigate deemed taxable discharges in significant business distress situations, there must be an actual discharge within 60 days of the potential trigger. Knowledge of deemed release rules to take timely action to manage risk is crucial. The corporate bailout relief removes the deemed release rule if all of the affected debt is released. If there is a partial release, the deemed release amount is reduced by the amount released. Caution should be exercised in calculating the deemed release amount to ensure that sufficient debt is discharged to mitigate the deemed release amount. Deemed discharges are relevant for loan relationships in Part 5 of CTA 2009 and commercial or real estate debts in Part 6 of CTA 2009. ”
Published with permission from Tax Journal © 2021.