In July 2017 the Financial Conduct Authority announced that the London Inter-Bank Offered Rate (LIBOR) will be discontinued at the end of 2021. LIBOR is one of the primary benchmarks for short term interest rates around the world, and is used as a reference in many arm’s length agreements (e.g. interest on a loan may be charged at LIBOR plus 2%). The intention is that LIBOR will be replaced with a new benchmark risk free rate of interest.
Since that announcement, a huge amount of work has been done by market participants, advisers and regulators to determine how the new benchmark will work. Although this is still ongoing, it is clear that the change will trigger a number of tax and accounting consequences.
The Association of Corpoarate Treasurers (ACT) is in discussion with both the Financial Conduct Authority and HMRC to raise concerns about the accounting, tax and other implications of the discontinuation of LIBOR.
The tax concerns include the following.
There are concerns that it will take some time to work out how to react to the above. For example, decisions will be needed as to:
