A | B | C | D | E | F | G | H | I | J | L | M | P | Q | R | S | T | U | V | W | Y | Z

Capital Contribution: an injection of equity into a company, in cash or in kind, which increases the equity reserves of a company without being linked to shares, and which does not generally constitute taxable income for the company or earn a return for the contributor. Its UK accounting status is unclear, and it can be useful to define status and treatment for the period of any thin cap agreement. Capital distribution Distribution of funds not derived from the profits of a company, being either a return of the original subscribed capital or derived from a sale of capital assets.

Capitalisation: the amount of equity in a company, or the value of the equity, as in market capitalisation. Expense may be capitalised e.g. R&D costs treated as an intangible asset.

Capital Redemption Reserve: under Section 773 of the Companies Act 2006, when a company buys back its own shares using either company’s profits or a fresh issue of shares, the amount by which the company’s issued share capital is diminished on cancellation of the shares must be transferred to a reserve called the ‘capital redemption reserve’. This counterbalances the reduction in equity caused by the cancellation of the repurchased shares.

Cash Basis: accounting method in which only cash receipts and cash expenditure are used in computing taxable income.

Check-The-Box Regulations: method used since 1997 to determine the classification of a domestic or foreign business as a corporation, a partnership or a “disregarded entity” for US tax purposes. A disregarded entity is treated as a branch or division of its owner, not as a taxable entity in its own right The term comes from the practice of ticking a box on an Internal Revenue Service Form 8832 to opt for a particular treatment. If no election is made, default rules apply based upon the liability, and the number of members/owners.

Collar Interest Rate Collar: a term used for variable-rate debt, setting a range within which the interest rate may vary between a maximum (the “cap”) and a minimum (the “floor”).

Commercial Paper: unsecured, short-term loans (less than a year) issued by companies. The debt is usually sold at a discount to face value, and then redeemed at face value. The funds are typically used for working capital, rather than fixed assets such as a new building. They can serve as a cheaper alternative to a bank overdraft.

Commitment Fee: a fee charged annually by the lender for holding funds available, whether they are used or not, for example where a company has a facility of £5m but has only drawn £2m. The lender charges for the continuing availability of the remainder. If a transfer pricing adjustment reduces the size of a company’s facility, there should be a corresponding reduction in the fee.

Conduit Financing: transaction involving one or more intermediate or “conduit” companies, used at times to reduce withholding tax. A company in a zero withholding territory is placed between the UK and the true lender, who is either in a country with a residual rate of tax (e.g. 10%) or in a tax haven. Such arrangements can be challenged. (See also back-to-back loan, treaty shopping and beneficial ownership)

Convertible Debt: a bond which gives the holder the option of either receiving repayment of the principal at maturity, or of converting the debt into shares (either in the issuing company, or some other company). Sometimes referred to as hybrid capital.

Coupon (Rate): the nominal annual rate of interest receivable on a fixed income security, expressed as a percentage of the principal value, usually paid to the holder of the security annually, semi-annually or quarterly, depending on the type of security. The term is also used more loosely to refer to any income-like return on an investment.

Coupon Stripping: former exploitation of the difference in the UK between the tax treatment of interest and accruing discount, eliminated by anti-avoidance and loan relationships legislation. Generally, separating an interest-bearing security into separate components: the right to receive the principal (called the principal strip) and the right to receive interest (a series of coupon strips). The separate components are repackaged and can be traded individually.

Coupon Washing (or Bond Washing): sale of a bond by a resident to a non-resident immediately before the annual interest is due, to avoid paying tax on the interest. The non-resident sells the bond back to the resident at a lower price and the ‘tax saved’ is divided between the two.

Credit Rating: this is an estimate of the credit worthiness of a person, a company or a state, an indicator of risk to potential investors. A rating, expressed in letters and +/- (for example “BB-“) heavily influences how much can be borrowed and what it will cost. The result of in-depth study by a ratings agency, it should not be confused with credit scorings carried out as a limited exercise on proprietary software and often encountered as part of a thin cap report. See INTM586100.