Tax treatment in the hands of the creditor

Polish tax regulations provide three major methods for obtaining a tax deduction for irrecoverable debt: waiver or forgiveness of debt, debt write-off and revaluation write-off.

Tax treatment in the hands of the creditor

The tax treatment of the forgiveness of debt within a group of companies depends on whether or not such forgiveness is of a “normal nature”. In order to be considered as being of a normal nature, the ‘advantage’ granted by a parent/creditor to its subsidiary/debtor must involve valid business reasons.

Tax treatment in the hands of the creditor

Introduction

In the current economic crisis, an increasing number of companies are facing financial difficulties and potential insolvency. Unsurprisingly, at such times, tax issues can often be overlooked. This can lead to potential tax risks, lost opportunities and a failure to maximise assets. Correct planning can make a significant difference to the potential tax liabilities and maximisation of tax assets of a company or a group that is facing insolvency.

The UK generally distinguishes between “loan relationship” debts (e.g. loan receivables) and other debts (e.g. trading debt in respect of outstanding consideration for the sale of goods or services). It is possible to turn a trading debt into a loan relationship by issue of a debenture in respect of it.

Tax treatment in the hands of the creditor

Tax treatment in the hands of the creditor

If a creditor waives an intra-group receivable, this leads to an accounting loss in the amount of the receivable. Such loss, however, is not automatically tax-deductible in the hands of the creditor.

An examination of the impact of an insolvent respondent in an arbitration.

In 2008, the catastrophic effect of the credit crunch spread to most world economies, touching governments, companies and individuals alike. As in previous recessions, insolvency is affecting increasing numbers of individuals and companies. UK government figures show that individual insolvencies went up by 8.8% in the third quarter of 2008, with corporate liquidations up by 10.5% in the same period. Commentators predict that this trend will only accelerate through 2009.

Nothing is certain in today's financial crisis - except that the legal system will be sorting out the rights and obligations of financial market participants for years to come. This is especially true for participants in the over-the-counter derivatives markets.

This memorandum provides an overview of the practical issues facing a sub-participant under a Loan Market Association ("LMA") English-law governed sub-participation agreement as the creditworthiness of grantor deteriorates.

We look at the recent case of Barlow Clowes International Ltd & Ors v Henwood [2008] EWCA Civ 577 which considers when a domicile of origin can be revived.

Background