Readers old enough to remember the taxation of corporate debt pre-1996 will recall a complex and sometimes apparently arbitrary system full of anomalies. The introduction of the corporate debt rules in 1996, together with the 1993 foreign exchange rules and 1994 financial instrument regime, heralded a new era in the taxation of these areas, providing a cohesive regime and starting the trend, which continues today in many other areas, for tax treatment to be driven by accounting treatment rather than cash payments.

Many practitioners welcomed the broad thrust of the new corporate debt, foreign exchange and financial instrument rules, and in many cases they simplified the tax position and enabled tax to follow accounts treatment. However, there are inevitable complexities, at which point the technical position and interpretation of the rules can quickly become very difficult. Furthermore, since the introduction of these rules there have been many and sometimes substantial changes. For accountants, interpretation is not helped by the fact that the legislation refers to debtors and creditors, but these terms do not have their normal accounting meaning.

Tolley’s Taxation of Corporate Debt, Foreign Exchange and Derivative Contracts by David Southern is now in its seventh edition and fully updated up to Finance Act 2003. It covers all aspects of the corporate debt, foreign exchange and derivatives rules, including the interaction between the tax codes and accounting framework.

The book runs through basic issues, such as the overriding concept behind the legislation of an income/accruals basis rather than a capital/income divide and whether an amount is a loan relationship as opposed to, for example, a trade debt. It then goes on to consider charging provisions and the distinction between trading and non-trading.

There is a useful commentary on the meaning of many financial terms. The ‘jargon’ used for financial transactions can be confusing and the exact meaning of certain types of hedges or hybrid, synthetic and derivative financial instrument can be unclear. The book contains a discussion on these and examples which are very useful to those who do not work with financial instruments on a day-to-day basis.

The book also covers structured capital finance and discusses the background and typical structures as well as the tax consequences. The book similarly covers debt securities, qualifying/non-qualifying corporate bonds, convertibles, etc.