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There are several types of distributions as detailed in D5.102 and in specific cases a payment described as 'interest' in the company's financial statements may be treated as a distribution for tax purposes. The specific situations detailed in the legislation are:

1. Ìý

   •ÌýÌýÌýÌý distributions in respect of non-commercial securities (paragraph E) ¹, and

2. Ìý

   •ÌýÌýÌýÌý distributions in respect of special securities (paragraph F) — dealt with in D5.127²

The effect of reclassifying interest as a distribution can make a difference to the tax treatment for both the payer and the recipient. Interest paid by a company is generally allowable as a deduction under the loan relationship regime but a distribution is not an allowable deduction. Interest received by a company is taxable as a loan relationship credit. The receipt of a distribution by a company would normally be exempt from tax but a distribution which represents recharacterised interest is not exempt³.