Finance Bill (HC Bill 102)

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378 Disallowed tax-interest expense amounts carried forward

(1) For the purposes of this Part a tax-interest expense amount of a
company is “disallowed” in an accounting period if the company is
required to leave it out of account in that accounting period under
5section 375 or 376.

(2) A tax-interest expense amount of a company that is disallowed in an
accounting period is (subject to the remaining provisions of this
section) carried forward to subsequent accounting periods.

(3) Where—

(a) 10a tax-interest expense amount of a company would (apart
from this Part) be brought into account in calculating the
profits or losses of a trade carried on by the company in an
accounting period,

(b) the tax-interest expense amount is disallowed in that
15accounting period, and

(c) in a subsequent accounting period (“the later accounting
period”) the company ceases to carry on the trade, or the scale
of the activities in the trade becomes small or negligible,

the tax-interest expense amount is not carried forward to the later
20accounting period or accounting periods after the later accounting
period.

(4) Where—

(a) a tax-interest expense amount of a company would (apart
from this Part) be brought into account in calculating the
25profits or losses of a trade carried on by the company in an
accounting period,

(b) the tax-interest expense amount is disallowed in that
accounting period, and

(c) in a subsequent accounting period (“the later accounting
30period”) the trade is uncommercial and non-statutory,

the tax-interest expense amount is not carried forward to the later
accounting period or accounting periods after the later accounting
period.

(5) For the purposes of subsection (4), a trade is “uncommercial and non-
35statutory” in an accounting period if, were the company to have
made a loss in the trade in the period, relief for the loss under section
37 of CTA 2010 (relief for trade losses against total profits) would
have been unavailable by virtue of section 44 of that Act (trade must
be commercial or carried on for statutory functions).

(6) 40Where—

(a) a tax-interest expense amount of a company would (apart
from this Part) be brought into account in calculating the
profits or losses of an investment business carried on by the
company in an accounting period,

(b) 45the tax-interest expense amount is disallowed in that
accounting period, and

(c) in a subsequent accounting period (“the later accounting
period”) the company ceases to carry on the investment

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business, or the scale of the activities in the investment
business becomes small or negligible,

the tax-interest expense amount is not carried forward to the later
accounting period or accounting periods after the later accounting
5period.

(7) Where a tax-interest expense amount—

(a) is disallowed in an accounting period,

(b) is carried forward to a subsequent accounting period (“the
later accounting period”), and

(c) 10is brought into account in the later accounting period in
accordance with section 379,

it is not carried forward to accounting periods after the later
accounting period.

379 Reactivation of interest

(1) 15This section applies where—

(a) an interest restriction return is submitted for a period of
account of a worldwide group (“the relevant period of
account”),

(b) the return complies with the requirements of paragraph 20(3)
20of Schedule 7A (requirements for full interest restriction
return), and

(c) the return contains a statement that the group is subject to
interest reactivations in the return period.

(2) A company that is listed on the statement under paragraph 25 of
25Schedule 7A (statement of allocated interest reactivations) must, in
the specified accounting period, bring into account tax-interest
expense amounts that—

(a) are brought forward to the specified accounting period from
an earlier accounting period, and

(b) 30in total, equal the allocated reactivation for the return period.

(3) A tax-interest expense amount is brought into account in the
specified accounting period under subsection (2) by being treated as
a tax-interest expense amount of the specified accounting period (so
that, for example, a tax-interest expense amount that is a relevant
35loan relationship debit falling within section 383(2)(a)(ii) is brought
into account in the specified period as a non-trading debit under Part
5 of CTA 2009).

(4) See section 380 for provision as to which tax-interest expense
amounts are to be brought into account under subsection (2).

(5) 40In this section “the specified accounting period” means—

(a) the earliest relevant accounting period of the company, or

(b) where the company became a member of the relevant
worldwide group during the relevant period of account, the
earliest relevant accounting period of the company in which
45it was a member of the group.

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380 Reactivation of deductions: identification of the tax-interest amounts
to be brought into account

(1) This section applies where—

(a) a company is required to bring tax-interest expense amounts
5into account in an accounting period under section 379, and

(b) the total of the tax-interest expense amounts that are brought
forward to the accounting period from earlier accounting
periods exceeds the total of the tax-interest expense amounts
that are required by that provision to be brought into account
10in that accounting period.

(2) Tax-interest expense amounts must (subject to the following
provisions of this section) be brought into account in the following
order.

First, bring into account tax-interest expense amounts that meet
15condition A in section 382 and are brought into account under Part 5
of CTA 2009 (non-trading debits in respect of loan relationships).

Second, bring into account tax-interest expense amounts that meet
condition B in section 382 and are brought into account under Part 5
of CTA 2009 as a result of section 574 of that Act (non-trading debits
20in respect of derivative contracts).

Third, bring into account tax-interest expense amounts that meet
condition A in section 382 and are brought into account under Part 3
of CTA 2009 as a result of section 297 of that Act (debits in respect of
loan relationships treated as expenses of trade).

25Fourth, bring into account tax-interest expense amounts that meet
condition B in section 382 and are brought into account under Part 3
of CTA 2009 as a result of section 573 of that Act (debits in respect of
derivative contracts treated as expenses of trade).

Fifth, bring into account tax-interest expense amounts that meet
30condition C in section 382 and do not also meet condition A or B in
that section (finance leases, debt factoring and service concession
arrangements).

(3) The company may—

(a) elect that subsection (2) is not to apply to the accounting
35period, or

(b) revoke an election previously made.

(4) An election under this section must specify the particular tax-interest
expense amounts that are to be brought into account.

381 Set-off of disallowances and reactivations in the same accounting
40period

(1) This section applies where, as a result of the operation of this Part in
relation to different periods of account (whether of the same or a
different worldwide group), a company would, apart from this
section—

(a) 45be required to leave out of account one or more tax-interest
expense amounts in an accounting period under section 375
or 376, and

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(b) be required to bring one or more tax-interest expense
amounts into account in that accounting period under section
379.

(2) In this section—

(a) 5“the gross disallowed amount” means the amount, or total of
the amounts, mentioned in subsection (1)(a);

(b) “the gross reactivated amount” means the amount, or total of
the amounts, mentioned in subsection (1)(b).

(3) Where the gross disallowed amount is equal to the gross reactivated
10amount, no tax-interest expense amounts are to be left out of account
in the accounting period under this Part or brought into account in
the accounting period under this Part.

(4) Where the gross disallowed amount is more than the gross
reactivated amount—

(a) 15the requirement in section 375 or 376 is to leave out of account
tax-interest expense amounts that, in total, equal the gross
disallowed amount less the gross reactivated amount, and

(b) no amount is to be brought into account in the accounting
period under section 379.

(5) 20Where the gross reactivated amount is more than the gross
disallowed amount—

(a) no amount to be left out of account in the accounting period
under section 375 or 376, and

(b) the requirement in section 379 is to bring into account the
25gross reactivated amount less the gross disallowed amount.

CHAPTER 3 Tax-interest amounts
Tax-interest expense and income amounts: basic rules
382 The tax-interest expense amounts of a company

(1) 30References in this Part to a “tax-interest expense amount” of a
company for a period of account of a worldwide group are to any
amount that—

(a) is (or apart from this Part would be) brought into account for
the purposes of corporation tax in a relevant accounting
35period of the company, and

(b) meets condition A, B or C.

(2) Condition A is that the amount is a relevant loan relationship debit
(see section 383).

(3) Condition B is that the amount is a relevant derivative contract debit
40(see section 384).

(4) Condition C is that the amount is in respect of the financing cost
implicit in amounts payable under a relevant arrangement or
transaction.

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(5) In subsection (4) “relevant arrangement or transaction” means—

(a) a finance lease,

(b) debt factoring, or any similar transaction, or

(c) a service concession arrangement if and to the extent that the
5arrangement is accounted for as a financial liability.

(6) Subsection (8) applies if an accounting period in which a tax-interest
expense amount is (or apart from this Part would be) brought into
account for the purposes of corporation tax contains one or more
disregarded periods.

(7) 10A “disregarded period” is any period falling within the accounting
period—

(a) which does not fall within the period of account of the
worldwide group, or

(b) throughout which the company is not a member of the group.

(8) 15Where this subsection applies, the tax-interest expense amount
mentioned in subsection (6) is reduced by such amount as is
referable, on a just and reasonable basis, to the disregarded period or
periods mentioned in that subsection.

(9) An amount may be reduced to nil under subsection (8).

(10) 20If—

(a) an amount would have met condition A, B or C but for the
application of a rule preventing its deduction,

(b) some or all of it is deductible at a subsequent time as a result
of the application of another rule, and

(c) 25none of conditions A to C are met at that time,

so much of the amount as is subsequently deductible is treated, at
that time, as meeting whichever of condition A, B or C would have
been met but for the application of the rule mentioned in paragraph
(a).

(11) 30An example of a case to which subsection (10) applies is a case
where—

(a) an amount is prevented from being deducted as a result of
any provision made by Part 6A (hybrid and other
mismatches), and

(b) 35another provision of that Part subsequently applies so as to
permit some or all of it to be deducted from total profits.

383 Relevant loan relationship debits

(1) This section applies for the purposes of section 382.

(2) An amount is a “relevant loan relationship debit” if—

(a) 40it is a debit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a loan relationship under—

(i) Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or

(ii) 45Part 5 of that Act (other loan relationships), and

(b) is not an excluded debit.

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(3) A debit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange loss (within the meaning of
Parts 5 and 6 of CTA 2009), or

(b) it is in respect of an impairment loss.

384 5Relevant derivative contract debits

(1) This section applies for the purposes of section 382.

(2) An amount is a “relevant derivative contract debit” if—

(a) it is a debit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
10a derivative contract under—

(i) Part 3 of CTA 2009 as a result of section 573 of that Act
(derivative contracts for purposes of trade), or

(ii) Part 5 of that Act as a result of section 574 of that Act
(other derivative contracts),

(b) 15it is not an excluded debit, and

(c) the condition in subsection (4) is met.

(3) A debit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange loss (within the meaning of Part
7 of CTA 2009),

(b) 20it is in respect of an impairment loss, or

(c) it is in respect of a derivative contract which hedges risks
arising in the ordinary course of a trade where the contract
was entered into wholly for reasons unrelated to the capital
structure of the worldwide group (or any member of the
25worldwide group).

(4) The condition referred to in subsection (2)(c) is that the underlying
subject matter of the derivative contract consists only of one or more
of the following—

(a) interest rates;

(b) 30any index determined by reference to income or retail prices;

(c) currency;

(d) an asset or liability representing a loan relationship;

(e) any other underlying subject matter which is—

(i) subordinate in relation to any of the matters
35mentioned in paragraphs (a) to (d), or

(ii) of small value in comparison with the value of the
underlying subject matter as a whole.

(5) For the purposes of this section, whether part of the underlying
subject matter of the derivative contract is subordinate or of small
40value is to be determined by reference to the time when the company
enters into or acquires the contract.

(6) In this section “underlying subject matter” has the same meaning as
in Part 7 of CTA 2009.

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385 The tax-interest income amounts of a company

(1) References in this Part to a “tax-interest income amount” of a
company for a period of account of a worldwide group are to any
amount that—

(a) 5is (or apart from this Part would be) brought into account for
the purposes of corporation tax in a relevant accounting
period of the company, and

(b) meets condition A, B, C or D.

(2) Condition A is that the amount is a relevant loan relationship credit
10(see section 386).

(3) Condition B is that the amount is a relevant derivative contract credit
(see section 387).

(4) Condition C is that the amount is in respect of the financing income
implicit in amounts receivable under a relevant arrangement or
15transaction.

(5) In subsection (4) “relevant arrangement or transaction” means—

(a) a finance lease,

(b) debt factoring, or any similar transaction, or

(c) a service concession arrangement if and to the extent that the
20arrangement is accounted for as a financial asset.

(6) Condition D is that the amount is in respect of income that—

(a) is receivable from another company, and

(b) is in consideration of the provision of a guarantee of any
borrowing of that other company.

(7) 25Subsection (9) applies if an accounting period in which a tax-interest
income amount is (or apart from this Part would be) brought into
account for the purposes of corporation tax contains one or more
disregarded periods.

(8) A “disregarded period” is any period falling within the accounting
30period—

(a) which does not fall within the period of account of the
worldwide group, or

(b) throughout which the company is not a member of the group.

(9) Where this subsection applies, the tax-interest income amount
35mentioned in subsection (7) is reduced by such amount as is
referable, on a just and reasonable basis, to the disregarded period or
periods mentioned in that subsection.

(10) An amount may be reduced to nil under subsection (9).

386 Relevant loan relationship credits

(1) 40This section applies for the purposes of section 385.

(2) An amount is a “relevant loan relationship credit” if—

(a) it is a credit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a loan relationship under—

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(i) Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or

(ii) Part 5 of that Act (other loan relationships), and

(b) it is not an excluded credit.

(3) 5A credit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange gain (within the meaning of
Parts 5 and 6 of CTA 2009), or

(b) it is in respect of the reversal of an impairment loss.

387 Relevant derivative contract credits

(1) 10This section applies for the purposes of section 385.

(2) An amount is a “relevant derivative contract credit” if—

(a) it is a credit that is (or apart from this Part would be) brought
into account for the purposes of corporation tax in respect of
a derivative contract under—

(i) 15Part 3 of CTA 2009 as a result of section 573 of that Act
(derivative contracts for purposes of trade), or

(ii) Part 5 of that Act as a result of section 574 of that Act
(other derivative contracts),

(b) is not an excluded credit, and

(c) 20the condition in subsection (4) is met.

(3) A credit is “excluded” for the purposes of subsection (2)(b) if—

(a) it is in respect of an exchange gain (within the meaning of
Part 7 of CTA 2009),

(b) it is in respect of the reversal of an impairment loss, or

(c) 25it is in respect of a derivative contract which hedges risks
arising in the ordinary course of a trade where the contract
was entered into wholly for reasons unrelated to the capital
structure of the worldwide group (or any member of the
worldwide group).

(4) 30The condition referred to in subsection (2)(c) is that the underlying
subject matter of the derivative contract consists only of one or more
of the following—

(a) interest rates;

(b) any index determined by reference to income or retail prices;

(c) 35currency;

(d) an asset or liability representing a loan relationship;

(e) any other underlying subject matter which is—

(i) subordinate in relation to any of the matters
mentioned in paragraphs (a) to (d), or

(ii) 40of small value in comparison with the value of the
underlying subject matter as a whole.

(5) For the purposes of this section, whether part of the underlying
subject matter of the derivative contract is subordinate or of small
value is to be determined by reference to the time when the company
45enters into or acquires the contract.

(6) In this section “underlying subject matter” has the same meaning as
in Part 7 of CTA 2009.

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Double taxation relief
388 Double taxation relief

(1) This section applies where—

(a) apart from this section, an amount (“the relevant amount”)
5would be a tax-interest income amount brought into account
for the purposes of corporation tax in a relevant accounting
period (“the relevant accounting period”) of a company, and

(b) the amount of corporation tax chargeable in respect of the
relevant amount is reduced under section 18(2) (entitlement
10to credit for foreign tax reduces UK tax by amount of the
credit).

(2) The relevant amount is not a tax-interest income amount to the
extent that it consists of notional untaxed income.

(3) For this purpose, the amount of the relevant amount that consists of
15“notional untaxed income” is—


where—

  • A is the amount of the reduction mentioned in subsection (1)(b);

  • B is the rate of corporation tax payable by the company, before
    20any credit under Part 2 (double taxation relief), on the
    company’s profits for the relevant accounting period.

Net tax-interest expense
389 The “net tax-interest expense” or “net tax-interest income” of a
company

(1) 25A company has “net tax-interest expense” for a period of account of
a worldwide group if the total of its tax-interest expense amounts for
the period exceeds the total of its tax-interest income amounts for the
period.

(2) The amount of the net tax-interest expense of the company for the
30period is the amount of the excess.

(3) A company has “net tax-interest income” for a period of account of a
worldwide group if the total of its tax-interest income amounts for
the period exceeds the total of its tax-interest expense amounts for
the period.

(4) 35The amount of the net tax-interest income of the company for the
period is the amount of the excess.

(5) The net tax-interest expense or net tax-interest income of a company
for a period of account of a worldwide group is “referable” to an
accounting period of the company to the extent that it comprises tax-
40interest expense amounts or tax-interest income amounts that are (or
apart from this Part would be) brought into account in the
accounting period.

(6) This section applies for the purposes of this Part.

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390 The worldwide group’s aggregate net tax-interest expense and income

(1) The “aggregate net tax-interest expense” of a worldwide group for a
period of account of the group is (subject to subsection (2))—

(a) the total of the net tax-interest expense for the period of each
5relevant company that has such an amount, less

(b) the total of the net tax-interest income for the period of each
relevant company that has such an amount.

(2) Where the amount determined under subsection (1) is negative, the
“aggregate net tax-interest expense” of the group for the period is nil.

(3) 10The “aggregate net tax-interest income” of a worldwide group for a
period of account of the group is (subject to subsection (4))—

(a) the total of the net tax-interest income for the period of each
relevant company that has such an amount, less

(b) the total of the net tax-interest expense for the period of each
15relevant company that has such an amount.

(4) Where the amount determined under subsection (3) is negative, the
“aggregate net tax-interest income” of the group for the period is nil.

(5) In this section “relevant company” means a company that was a
member of the group at any time during the period of account of the
20group.

(6) This section applies for the purposes of this Part.

Interpretation
391 Meaning of “impairment loss”

(1) In this Part “impairment loss” means a loss in respect of the
25impairment of a financial asset.

(2) A reference to a debit in respect of an impairment loss does not
include a debit that is (or apart from this Part would be) brought into
account in an accounting period in respect of an asset for which fair
value accounting is used.

30CHAPTER 4 Interest capacity
392 The interest capacity of a worldwide group for a period of account

(1) For the purposes of this Part “the interest capacity” of a worldwide
group for a period of account of the group (“the current period”) is
35(subject to subsection (2))—

A + B

where—

  • A is the interest allowance of the group for the current period
    (see Chapter 5);

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  • B is the aggregate of the interest allowances of the group for
    periods before the current period so far as they are available
    in the current period (see section 393).

(2) Where the amount determined under subsection (1) is less than the
5de minimis amount for the current period, the interest capacity of the
worldwide group for the period is the de minimis amount.

(3) For this purpose “the de minimis amount” for a period of account
is—

(a) £2 million, or

(b) 10where the period is more than or less than a year, the amount
mentioned in paragraph (a) proportionately increased or
reduced.

393 Amount of interest allowance for a period that is “available” in a later
period

(1) 15This section applies for the purposes of this Chapter.

(2) The amount of the interest allowance of a worldwide group for a
period of account (“the originating period”) that is “available” in a
later period of account of the group (“the receiving period”) is
(subject to subsection (5)) the lower of amounts A and B.

(3) 20Amount A is—

(a) the amount of the interest allowance for the originating
period, less

(b) the total of the amount or amounts (if any) of that interest
allowance that were used in the originating period, or in any
25subsequent period of account of the group before the
receiving period (see section 394).

(4) Amount B is the amount (if any) of the interest allowance for the
originating period that is unexpired in the receiving period (see
section 395).

(5) 30The amount of the interest allowance for the originating period that
is “available” in the receiving period is nil if—

(a) an abbreviated return election is made in relation to the
originating period, the receiving period or any intervening
period of account of the group, or

(b) 35an interest restriction return is not submitted for any such
period.

394 When interest allowance is “used”

(1) This section applies for the purposes of this Chapter.

(2) The amount of the interest allowance of a worldwide group for a
40period of account of the group (“the originating period”) that is
“used” in the originating period is the lower of—

(a) the interest allowance for the originating period, and

(b) the sum of—

(i) the aggregate net tax-interest expense of the group for
45the originating period;

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(ii) the total amount of tax-interest expense amounts
required to be brought into account in the originating
period under section 379 (reactivation of interest) by
members of the group.

(3) 5The amount of the interest allowance for the originating period that
is “used” in a later period of account of the group (“the receiving
period”) is the lower of—

(a) the interest allowance so far as it is available in the receiving
period (see section 393), and

(b) 10the relevant part of the aggregate net tax-interest expense of
the group for the receiving period (see subsection (4)).

(4) In subsection (3)(b) “the relevant part of the aggregate net tax-
interest expense of the group for the receiving period” is (subject to
subsection (5))—


15

A − B − C

where—

  • A is the aggregate net tax-interest expense of the group for the
    receiving period;

  • B is the interest allowance of the group for the receiving period;

  • 20C is the amount of the interest allowance of the group for any
    period before the originating period that is used in the
    receiving period.

(5) Where the amount determined under subsection (4) is negative, “the
relevant part of the aggregate net tax-interest expense of the group
25for the receiving period” is nil.

395 Amount of interest allowance for a period of account that is
“unexpired” in later period

(1) This section contains provision for determining for the purposes of
this Chapter the extent to which an interest allowance of a
30worldwide group for a period of account (“the originating period”)
is “unexpired” in a later period of account of the group (“the
receiving period”).

(2) If the receiving period—

(a) begins 5 years or less after the originating period begins, and

(b) 35ends 5 years or less after the originating period ends,

all of the interest allowance for the originating period is unexpired in
the receiving period.

(3) If the receiving period begins 5 years or more after the originating
period ends, none of the interest allowance for the originating period
40is unexpired in the receiving period.

(4) Subsection (5) applies if the receiving period—

(a) begins more than 5 years after the originating period begins,
and

(b) ends 5 years or less after the originating period ends.

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(5) The amount of the interest allowance for the originating period that
is unexpired in the receiving period is—


where—

  • 5A is the interest allowance for the originating period;

  • B is—

    (a)

    the aggregate net tax-interest expense of the group for
    the originating period, or

    (b)

    if lower, the interest allowance for the originating
    10period;

  • X is the number of days in the period—

    (a)

    beginning with the day on which the receiving period
    begins, and

    (b)

    ending with the day 5 years after the day on which the
    15originating period ends;

  • Y is the number of days in the originating period.

(6) Subsection (7) applies if the receiving period—

(a) begins 5 years or less after the originating period begins, and

(b) ends more than 5 years after the originating period ends.

(7) 20The amount of the interest allowance for the originating period that
is unexpired in the receiving period is—


where—

  • C is the aggregate net tax-interest expense of the group for the
    25receiving period;

  • D is—

    (a)

    the interest allowance of the group for the receiving
    period, or

    (b)

    if lower, the aggregate net tax-interest expense of the
    30group for the receiving period;

  • X has the same meaning as in subsection (5);

  • Z is the number of days in the receiving period.

(8) Subsection (9) applies if—

(a) the receiving period—

(i) 35begins more than 5 years after the originating period
begins, and

(ii) ends more than 5 years after the originating period
ends, and

(b) subsection (3) does not apply.

(9) 40The amount of the interest allowance for the originating period that
is unexpired in the receiving period is the lower of the amounts
determined under subsections (5) and (7).

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CHAPTER 5 Interest allowance
Interest allowance
396 The interest allowance of a worldwide group for a period of account

(1) For the purposes of this Part “the interest allowance” of a worldwide
5group for a period of account of the group is—


A + B

where—

  • A is the basic interest allowance of the group for the period;

  • B is the amount (if any) of the aggregate net tax-interest income
    10of the group for the period (see section 390(3) and (4)).

(2) In subsection (1) “the basic interest allowance” means—

(a) where no group ratio election is in force in relation to the
period, the basic interest allowance calculated using the fixed
ratio method (see section 397);

(b) 15where such an election is in force in relation to the period, the
basic interest allowance calculated using the group ratio
method (see section 398).

397 Basic interest allowance calculated using fixed ratio method

(1) For the purposes of section 396, the basic interest allowance of a
20worldwide group for a period of account of the group, calculated
using the fixed ratio method, is the lower of the following amounts—

(a) 30% of the aggregate tax-EBITDA of the group for the period;

(b) the fixed ratio debt cap of the group for the period.

(2) See—

  • 25section 400 for the meaning of “fixed ratio debt cap”;

  • section 405 for the meaning of “aggregate tax-EBITDA”.

398 Basic interest allowance calculated using group ratio method

(1) For the purposes of section 396, the basic interest allowance of a
worldwide group for a period of account of the group, calculated
30using the group ratio method, is the lower of the following
amounts—

(a) the group ratio percentage of the aggregate tax-EBITDA of
the group for the period;

(b) the group ratio debt cap of the group for the period.

(2) 35See—

  • section 399 for the meaning of “group ratio percentage”;

  • section 400 for the meaning of “group ratio debt cap”;

  • section 405 for the meaning of “aggregate tax-EBITDA”.

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399 The group ratio percentage

(1) For the purposes of this Part “the group ratio percentage” of a
worldwide group for a period of account of the group is (subject to
subsection (2)) the following proportion expressed as a percentage—


5

where—

  • A is the qualifying net group-interest expense of the group for
    the period;

  • B is the group-EBITDA of the group for the period.

(2) 10“The group ratio percentage” is 100% where—

(a) the percentage determined under subsection (1) is negative
or higher than 100%, or

(b) B in that subsection is zero.

(3) See—

  • 15section 414 for the meaning of “qualifying net group-interest
    expense”;

  • section 416 for the meaning of “group-EBITDA”.

400 The debt cap

(1) For the purposes of section 397 (and this section), “the fixed ratio
20debt cap” of a worldwide group for a period of account of the group
is the sum of the following amounts—

(a) the adjusted net group-interest expense of the group for the
period;

(b) the excess debt cap of the group that was generated in the
25immediately preceding period of account of the group (if
any) (see subsections (3) to (7)).

(2) For the purposes of section 398 (and this section), “the group ratio
debt cap” of a worldwide group for a period of account of the group
is the sum of the following amounts—

(a) 30the qualifying net group-interest expense of the group for the
period;

(b) the excess debt cap of the group that was generated in the
immediately preceding period of account of the group (if
any) (see subsections (3) to (7)).

(3) 35Where no group ratio election is in force in relation to a period of
account of a worldwide group (“the generating period”), “the excess
debt cap” of the group that is generated in the period is (subject to
subsections (5) and (6))—


A − B

40where—

  • A is the fixed ratio debt cap of the group for the generating
    period;

  • B is 30% of the aggregate tax-EBITDA of the group for the
    generating period.

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(4) Where a group ratio election is in force in relation to a period of
account of a worldwide group (“the generating period”), “the excess
debt cap” of the group that is generated in the period is (subject to
subsections (5) and (6))—


5

A − B

where—

  • A is the group ratio debt cap of the group for the generating
    period;

  • B is the group ratio percentage of the aggregate tax-EBITDA of
    10the group for the generating period.

(5) Where the amount determined under subsection (3) or (4) is
negative, “the excess debt cap” of the group that is generated in the
period is nil.

(6) Where the amount determined under subsection (3) or (4) is greater
15than the carry-forward limit, “the excess debt cap” of the group that
is generated in the period is the carry-forward limit.

(7) For this purpose the “carry-forward limit” is the sum of the following
amounts—

(a) the excess debt cap generated in the period of account of the
20group immediately preceding the generating period (if any);

(b) the total disallowed amount of the group in the generating
period.

(8) See—

  • section 373 for the meaning of “the total disallowed amount”;

  • 25section 405 for the meaning of “aggregate tax-EBITDA”;

  • section 413 for the meaning of “adjusted net group-interest
    expense”;

  • section 414 for the meaning of “qualifying net group-interest
    expense”.

30Effect of group ratio (blended) election
401 Effect of group ratio (blended) election on group ratio percentage

(1) Where a group ratio (blended) election (see paragraph 14 of Schedule
7A) has effect in relation to a period of account of a worldwide group
(“the relevant period of account”), this Chapter applies subject to this
35section.

(2) Section 399 (meaning of “group ratio percentage”) does not apply for
the purpose of determining the group ratio percentage of the group
for the relevant period of account.

(3) Instead, the group ratio percentage of the group for the relevant
40period of account is determined by taking the following steps—

Step 1

For each investor in the group, multiply the investor’s applicable
percentage by the investor’s share in the group.

Step 2

45Add together the amounts found under Step 1.

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(4) For the purposes of this section, an investor’s “applicable
percentage” is the highest of the following percentages—

(a) 30%;

(b) the percentage determined under section 399;

(c) 5in the case of a related party investor that, throughout the
relevant period of account, is a member of a worldwide
group (“the investor’s worldwide group”) other than that
mentioned in subsection (1), the group ratio percentage of the
investor’s worldwide group for the relevant period of
10account.

(5) Subsection (6) applies where financial statements of the investor’s
worldwide group are drawn up in respect of one or more periods
(“the investor’s periods of account”) that are comprised in or overlap
with (but are not coterminous with) the relevant period of account.

(6) 15The group ratio percentage of the investor’s worldwide group for the
relevant period of account is to be determined for the purposes of
subsection (4)(c) by taking the following steps—

Step 1

Find the group ratio percentage of the investor’s worldwide group
20for each of the investor’s periods of account.

Step 2

Find the proportion of the relevant period of account that coincides
with each of the investor’s periods of account.

Step 3

25For each of the investor’s periods of account, multiply the group
ratio percentage found under Step 1 by the proportion found under
Step 2.