The IRD recently issued DIPN 53 which provides guidance on the application of the new Regulatory Capital Securities (RCS) rules to banks. The RCS rules were intended to clarify the tax treatment of certain types of funding instruments issued by banks in compliance with the Basel III capital adequacy requirements.
The main item of interest in DIPN 53 is the application of detailed anti-avoidance measures. There are extensive comments on the application of the rules related to Specified Connected Persons (SCP) and the restrictions imposed on deductions for payments made to related parties. This includes examples of funding raised via RCS issued to an offshore holding company.
Banks need to take care with funding arrangements to ensure they comply with these complex rules.