This guidance applies for periods of account beginning on or after 1 January 2005
CFM16615 to CFM16630 explains the impact of International Accounting Standards on the tax treatment of “hybrid” securities for accounting periods beginning on or after 1 January 2005. These standards radically change the way companies account for “hybrid” loan relationships, such as convertible, exchangeable, and asset-linked (essentially share-linked) securities.
The guidance deals firstly with common features of the taxation of convertible/exchangeable securities and share-linked securities ( CFM16635 to CFM16645). Briefly, these are the way in which the taxation of such securities follows the accounting treatment, and the replication of the capital gains treatment for holders. It then explains the detailed tax rules
Note that certain derivatives are excluded from this tax treatment of “hybrids”, both for holders and for issuers. These are derivatives (mainly futures) used for hedging the convertible or asset-linked security, in order to acquire shares for delivery to satisfy such instruments. These are excluded subject matter in FA02/SCH26/PARA4(2D). As the shares in such cases are taxed as capital gains, so too is the derivative instrument that hedges them. See CFM13104 for more on excluded subject matter.
