The Tax Treatment of Haircuts in Financial Reorganizations

18 Pages Posted: 18 Aug 2020 Last revised: 24 Feb 2021

See all articles by Aurelio Gurrea-Martínez

Aurelio Gurrea-Martínez

Singapore Management University - School of Law

Vincent Ooi

Singapore Management University - School of Law; Singapore Management University - Centre for AI & Data Governance

Date Written: July 31, 2020

Abstract

Over the past few years, Singapore has implemented various ambitious insolvency reforms aimed at making the country an international hub for debt restructuring. This article argues that while Singapore has put in place one of the most sophisticated restructuring frameworks in the world, some tax reforms might be useful to maximise the potential of this new restructuring framework. Namely, it will be pointed out that the tax treatment of debt forgiveness granted by creditors in corporate reorganisation (‘haircuts’) should be reviewed. Under the current legislation, these haircuts may be treated as taxable income. As a result, financially distressed debtors may be required to pay taxes for certain income that did not involve any actual generation of cash flows. This article argues that, by implementing tax reforms, local and foreign companies will be able to maximise the benefits associated with having access to the efficient insolvency framework implemented in Singapore.

Keywords: Insolvency, Restructuring, Debt Forgiveness, Corporate Reorganisation, Taxation

Suggested Citation

Gurrea-Martínez, Aurelio and Ooi, Vincent, The Tax Treatment of Haircuts in Financial Reorganizations (July 31, 2020). (2020) 26 Revenue Law Journal 1-18, Singapore Management University School of Law Research Paper No. 18/2020, Available at SSRN: https://ssrn.com/abstract=3641352

Aurelio Gurrea-Martínez

Singapore Management University - School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore
(+65) 6808-5160 (Phone)

HOME PAGE: http://https://law.smu.edu.sg/faculty

Vincent Ooi (Contact Author)

Singapore Management University - School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore

HOME PAGE: http://law.smu.edu.sg/faculty/profile/156436/Vincent-OOI

Singapore Management University - Centre for AI & Data Governance ( email )

55 Armenian Street
Singapore
Singapore

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