Derivatives and complex financial instruments: an introduction

In the current climate, companies are looking at new ways of raising finance – including issuing complex instruments and non-standard debt, such as convertible loan notes and warrants. Whilst these can give companies and investors more flexibility, the financial reporting and tax implications can be quite complex. Companies will need to understand the accounting treatment of such derivatives in order to determine the specific tax treatment, and this could give rise to taxation under CTA 2009 Pt 5 or Pt 7 or under TCGA 1992. Depending on the outcome, this could lead to significant cash tax liabilities, and therefore, it is critical that tax functions are talking to their treasury and finance functions as early as possible.