The UK is changing tax rules for hybrid capital instruments,
which market participants hope will end ambiguity of treatment.
This is a much-needed change as banks continue to be faced with
uncertainty concerning the deadline for the new total
loss-absorbing capacity (TLAC) requirements and the tax status
of these instruments.
The UK government, as part of its
budget released last week, is introducing new rules for taxing
hybrid capital instruments to eliminate mismatches between the
tax treatment of instruments used externally and those used
internally. These will replace the current rules, which cover
regulatory capital instruments, and will take into account the
Bank of England's minimum requirements from own funds &
eligible liabilities (MREL), which are required in a bail-in
resolution to recapitalise the bank.
"The question is whether the new UK legislation will
adequately capture the kinds of loss-absorbing instruments that
will be issued, and resolve ambiguity of...