Tax traps when varying debt

In these uncertain economic times many corporate groups are in negotiations with their finance providers with regards to the terms and structure of their current financing arrangements. In considering changes to current financing arrangements there may be many competing interests. For example a borrower may want more flexibility due to a change in trading conditions reduced borrowing costs to eliminate an actual or reduce the risk of breach of financial covenants and to maintain or improve the tax position.

 

On the other side the finance provider may want a greater margin given its increased cost of funding increased capital requirements perceived or real increased risk to maintain or increase its security ensure the effectiveness of its security or to ensure that it minimises any deterioration of the debt...