UK Taxation of Corporate Debt Buybacks: Government Proposes Anti-Avoidance Rule with Retrospective Effect

Sullivan & Cromwell LLP - April 12, 2012

Several groups have tried to structure buy-ins of their corporate debt at a discount so as not to suffer a tax charge in the debtor company. The UK government has moved to prevent this. The government’s attack has four prongs:

  • retrospective changes to the legislation to deny the tax benefit to deals already done;
  • different amendments to stop such arrangements working in future;
  • an anti-avoidance rule aimed at similar arrangements; and
  • the threat of retrospective changes to combat any arrangements aiming at the same result.

The legislation is very complicated: there are three different sets of technical amendments, applying to different periods, as well as the anti-avoidance rule. The anti-avoidance rule is a concern: it is likely to make legitimate transactions harder and gives HMRC too much discretion.

The government should clarify its position on the use of retrospective changes in law.