Explanatory note

These Regulations amend the Debts of Overseas Governments (Determination of Relevant Percentage) Regulations 1990 (S.I. 1990/2529) (“the principal Regulations”) which provide the method of determining the “relevant percentage” in relation to a debt owed to a company which is owed or guaranteed by an overseas State authority (or payment of which is or may be prevented or restricted by an overseas State). By virtue of section 88B(1) of the Income and Corporation Taxes Act 1988 the “relevant percentage” of such a debt is the maximum amount of that debt which may be estimated to be bad for the purposes of deduction in computing profits under section 74(j) of that Act.

The principal Regulations broadly reflect the guidelines published by the Bank of England for banks in relation to the amount of the provisions to be made in their accounts against loans which are not expected to be recovered in full. The amendments made by the present Regulations are made in the light of recently published changes to the Bank of England’s guidelines, and have effect with respect to periods of account of a company ending on or after the date of coming into force of these Regulations.

Regulation 1 provides for citation, commencement and effect, and regulation 2 contains definitions.

Regulation 3 amends regulation 3 of the principal Regulations. The amendment repeals the parts of regulation 3 which provide for an averaging process in determining the relevant percentage.

Regulation 4 amends paragraph 1(2)(a) of Schedule 1 to the principal Regulations (“Schedule 1”) following the repeal by regulation 3 of the averaging process.

Regulations 5 to 7 substitute new Tables for the Tables A to C in Schedule 1 which attribute numerical values to various factors relating to the overseas State and its ability to repay, or make payments of interest on, its debts. The new Tables abolish certain factors contained in the previous Tables, merge others, and introduce a new factor relating to a State’s debt service/export ratio, resulting in an overall reduction of factors from 15 to 11. They also make changes to the numerical values attributable to certain factors and the scoring systems relating to those values.

Regulation 8 amends Schedule 2 to the principal Regulations by substituting a new table of percentages corresponding to the aggregate of the numerical values attributed by Schedule 1 in the case of the particular State or territory with which the debt is connected.