CFM37410 - Loan relationships: special types of security: funding bonds: issue
Funding bonds issued to cover an interest liability
A company may issue funding bonds to a creditor instead of making a payment of interest. This section describes how the issue of funding bonds is treated for tax purposes.
Where funding bonds including any
- bonds,
- stocks,
- shares,
- securities or
- certificates of indebtedness
are issued to a creditor in respect of any liability to pay interest on any debt incurred by any
- government,
- public authority,
- public institution or
- body corporate
CTA09/S413 treats the issue as if it were a payment of interest for corporation tax purposes. ITTOIA05/S380 achieves the same effect for income tax purposes. However the amount treated as paid cannot exceed the value of the bonds at the time of their issue. 鈥榁alue鈥� here means market value - CFM37440.
It is the issue of the bond itself which counts as the 鈥榩ayment鈥� of interest, and not its later redemption for cash (CTA09/S414).