A new UK tax regime for regulatory capital
The new UK tax regime for regulatory capital issued in line with the Capital Requirements Regulation (CRR) element of the Capital Requirements Directive IV package of regulatory reform has now been finalised. The Regulations implementing the new regime have been passed and took effect from 1 January 2014.
The new regime applies to Additional Tier 1 instruments and Tier 2 instruments issued by credit institutions and investments firms in compliance with CRR. It provides favourable tax rules including those regarding deductibility of coupons, the write-down (and write-back) or conversion of regulatory capital, withholding tax and stamp taxes. This treatment is subject to an avoidance rule.
Although the new regime is a very positive move, there are some points to be aware of. For instance, the Regulations apply only to securities, so are not expected to provide equivalent treatment to regulatory capital in the form of a loan agreement. Also, although the Regulations should apply to UK branches of EEA institutions, the position is not clear with regard to UK branches of non-EEA institutions.
To read more about the new regime, you may be interested in our alert published following the release of the finalised regulations: A new UK tax regime for regulatory capital.4