Taxation (International and Other Provisions) Act 2010 section 240

Debt instruments treated as equity

Section 240 defines a type of deduction scheme involving debt instruments that are treated as equity, where a tax deduction arises because an instrument is classified as debt for tax purposes in one territory but as equity in another.

• This section is one of seven sections that define different types of "deduction scheme" relevant to the double deduction rules.
• A scheme falls within this section where a financial instrument is treated as giving rise to a deductible payment (such as interest on debt) in one territory, but is treated as equity (such as a share) in another territory.
• The mismatch in classification between territories means that a payment which generates a tax deduction in one jurisdiction may not be recognised as taxable income in the other, because it is regarded as a distribution on equity rather than a debt payment.
• The provision is based on earlier legislation in Schedule 3 to the Finance (No 2) Act 2005 and was amended by the Finance Act 2016.