As distinctions between debt and equity are collapsing, investors may face challenges when interpreting applicable tax rules when investing into structured debt instruments.

Different regimes have adopted varied approaches when classifying convertible instruments as either debt or equity. Tax authorities are increasingly resorting to the usage of GAAR to reclassify the nature of income based on an assessment of the underlying substance. Transfer pricing rules, beneficial ownership rules, and thin capitalization rules, implemented as tax-avoidance measures in recent years, have similarly disrupted conventional structuring efforts.