CommitteeReports


Finance Law Committee The Committee has on-going projects in relation to improvements to English law on the taking of security from companies and on legal opinions. It has reviewed a number of consultation papers related to the banking industry, but as these are regulatory rather than transactional in impact, the Committee has preferred to support the submissions of the FMLC and the Law Society Committee on Banking Reform, as well as submissions of the Insolvency Law Committee on aspects of the EU proposals in Rescue and Reconstruction for Financial Institutions.


It is looking at issues raised by the Competition Law Committee on the implementation of amendments to the cartel offence under the Enterprise Act 2002 (as amended) which may affect certain large financial transactions. It is examining whether the Government’s proposals for trust and transparency in relation to large stakes in UK companies (the beneficial ownership of which would be revealed on a public register) have implications for transactions in which such stakes are charged to financial institutions. The Chair of the Committee, Dorothy Livingston of Herbert Smith Freehills LLP continues to represent the CLLS on the Banking Liaison Panel which advises the Treasury on subsidiary legislation under the Banking Act 2009. Extensions of the Act to financial institutions and central counterparties are the subject of current work and there


is an on-going independent


review on the way that the Act is working in relation to investment banks.


Dorothy Livingston, Chairman, Herbert Smith Freehills LLP


Revenue Law Committee


The Revenue Law Committee continues to focus on commenting on tax matters relevant to the work and clients of City firms, in particular, responding to HMRC and HM Treasury consultations.


4 • City Solicitor • Issue 84


derivative contracts in terms of a default process, departures from the default process and modifications to the default approach. We, however, prefer to address that interplay in terms of a straightforward priority rule and express exceptions. As regards the priority rule, we believe that it must address both the threshold issue of the identification of profits and losses from loan relationships/ derivative contracts and the


reason for the tax treatment to differ from the accounts, we think this does justify a departure from the accounting treatment. With this in mind, we would strongly oppose removing the tax-neutral nature of connected party debt releases, even if this means the accounts are not followed in every case. Being able to release connected party debt without triggering a tax charge in the debtor is important commercially, especially in the


As promised in the Autumn edition, below is a report on the Committee’s response to the HMRC “Modernising the taxation of corporate debt and derivative


contracts” consultation (published June 2013).


In summary, we made the following main points:


• The consultation document raises a number of very difficult questions (indeed in many ways it contains a number of different, if inter-related, consultations), but we agree that it is appropriate to undertake a significant review of the loan relationships code even if in many cases our recommendation is to make only minor changes.


• Chapters 3 and 4 of the consultation document address the interplay between tax and accountancy in identifying profits and losses from loan relationships/


ensuing issues of measurement and timing. Our strong preference is that both the threshold issue of the identification of profits and losses


from loan


relationships/


derivative contracts and the ensuing issues of measurement and timing of those profits and losses should be determined in accordance with GAAP, subject only to express exceptions.


• In relation to the proposals regarding connected party debt set out in Chapter 7 of the consultation document, as a general point, we agree that it is preferable and simpler for companies as much as possible to be able to follow the accounting treatment in preparing their tax computations, and not to be required to make additional computations specifically for tax purposes. Nevertheless, where there is a good policy or commercial


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