42
TECHNICAL BRIEFING COMPANY INVESTMENT IN OFFSHORE BONDS
Big benefits for small firms
SUMMARY
Offshore bonds are no longer
viable as cash vehicles for
large companies, due to
a change in accounting rules.
But for smaller companies,
a different set of accountancy
rules apply, meaning a tax
case remains for their use.
The reports of the death of the offshore bond as an investment option
for UK companies have been exaggerated. In fact, it is still worth
many firms taking a look at the tax-efficient returns it can offer
The Finance Act 2008
brought investment-style
life insurance contracts
held by companies within
the ‘loan relationship’ rules.
It was at first assumed that
this would mean the death
of offshore bonds as an
investment option for UKresident
companies. But
fuller analysis has shown
that they remain viable for
many companies.
UK resident companies
still benefit from indexa-
tion for capital gains tax
(CGT) purposes, and dividends
from UK companies
and unit trusts/Oeics are
tax-free to companies. That
means that, from a pure tax
viewpoint, an equity-based
bond would be inefficient.
But investment decisions
are not – or should
not – be based solely on
tax factors. In practice,
company-owned offshore
bonds are cash-based and
the objective is to use tax
INTERNATIONAL ADVISER [www.international-adviser.com] OCTOBER 2008
deferral to improve the
return on investment.
The tax legislation (the
loan relationship rules)
requires that: “Amounts to
be brought into account
by a company for any
period for the purposes of
this Chapter are those
that, in accordance with
generally accepted accounting
practice, are recognised
in determining the company’s
profit or loss for
the period.”
l Correct practice
But what is generally
accepted accounting practice
(GAAP)? Without getting
carried away with
the minutiae of accounting
theory, GAAP includes
statements of standard
accounting practice (SSAPs)
and financial reporting
standards (FRSs). These are
issued by the Accounting
Standards Board (ASB).
FRS 26 (Financial
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