Search Legislation

Council Directive (EU) 2016/1164Show full title

Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market

 Help about what version

What Version

 Help about advanced features

Advanced Features

 Help about opening options

Opening Options

Close

This is a legislation item that originated from the EU

After exit day there will be three versions of this legislation to consult for different purposes. The legislation.gov.uk version is the version that applies in the UK. The EU Version currently on EUR-lex is the version that currently applies in the EU i.e you may need this if you operate a business in the EU.

The web archive version is the official version of this legislation item as it stood on exit day before being published to legislation.gov.uk and any subsequent UK changes and effects applied. The web archive also captured associated case law and other language formats from EUR-Lex.

Changes over time for: Article 4

 Help about opening options

Status:

EU Directives are being published on this site to aid cross referencing from UK legislation. After exit day no further amendments will be applied to this version.

Article 4U.K.Interest limitation rule

1.Exceeding borrowing costs shall be deductible in the tax period in which they are incurred only up to 30 percent of the taxpayer's earnings before interest, tax, depreciation and amortisation (EBITDA).

For the purpose of this Article, Member States may also treat as a taxpayer:

(a)

an entity which is permitted or required to apply the rules on behalf of a group, as defined according to national tax law;

(b)

an entity in a group, as defined according to national tax law, which does not consolidate the results of its members for tax purposes.

In such circumstances, exceeding borrowing costs and the EBITDA may be calculated at the level of the group and comprise the results of all its members.

2.The EBITDA shall be calculated by adding back to the income subject to corporate tax in the Member State of the taxpayer the tax-adjusted amounts for exceeding borrowing costs as well as the tax-adjusted amounts for depreciation and amortisation. Tax exempt income shall be excluded from the EBITDA of a taxpayer.

3.By derogation from paragraph 1, the taxpayer may be given the right:

(a)

to deduct exceeding borrowing costs up to EUR 3 000 000;

(b)

to fully deduct exceeding borrowing costs if the taxpayer is a standalone entity.

For the purposes of the second subparagraph of paragraph 1, the amount of EUR 3 000 000 shall be considered for the entire group.

For the purposes of point (b) of the first subparagraph, a standalone entity means a taxpayer that is not part of a consolidated group for financial accounting purposes and has no associated enterprise or permanent establishment.

4.Member States may exclude from the scope of paragraph 1 exceeding borrowing costs incurred on:

(a)

loans which were concluded before 17 June 2016, but the exclusion shall not extend to any subsequent modification of such loans;

(b)

loans used to fund a long-term public infrastructure project where the project operator, borrowing costs, assets and income are all in the Union.

For the purposes of point (b) of the first subparagraph, a long-term public infrastructure project means a project to provide, upgrade, operate and/or maintain a large-scale asset that is considered in the general public interest by a Member State.

Where point (b) of the first subparagraph applies, any income arising from a long-term public infrastructure project shall be excluded from the EBITDA of the taxpayer, and any excluded exceeding borrowing cost shall not be included in the exceeding borrowing costs of the group vis-à-vis third parties referred to in point (b) of paragraph 5.

5.Where the taxpayer is a member of a consolidated group for financial accounting purposes, the taxpayer may be given the right to either:

(a)

fully deduct its exceeding borrowing costs if it can demonstrate that the ratio of its equity over its total assets is equal to or higher than the equivalent ratio of the group and subject to the following conditions:

(i)

the ratio of the taxpayer's equity over its total assets is considered to be equal to the equivalent ratio of the group if the ratio of the taxpayer's equity over its total assets is lower by up to two percentage points; and

(ii)

all assets and liabilities are valued using the same method as in the consolidated financial statements referred to in paragraph 8;

or

(b)

deduct exceeding borrowing costs at an amount in excess of what it would be entitled to deduct under paragraph 1. This higher limit to the deductibility of exceeding borrowing costs shall refer to the consolidated group for financial accounting purposes in which the taxpayer is a member and be calculated in two steps:

(i)

first, the group ratio is determined by dividing the exceeding borrowing costs of the group vis-à-vis third-parties over the EBITDA of the group; and

(ii)

second, the group ratio is multiplied by the EBITDA of the taxpayer calculated pursuant to paragraph 2.

6.The Member State of the taxpayer may provide for rules either:

(a)

to carry forward, without time limitation, exceeding borrowing costs which cannot be deducted in the current tax period under paragraphs 1 to 5;

(b)

to carry forward, without time limitation, and back, for a maximum of three years, exceeding borrowing costs which cannot be deducted in the current tax period under paragraphs 1 to 5; or

(c)

to carry forward, without time limitation, exceeding borrowing costs and, for a maximum of five years, unused interest capacity, which cannot be deducted in the current tax period under paragraphs 1 to 5.

7.Member States may exclude financial undertakings from the scope of paragraphs 1 to 6, including where such financial undertakings are part of a consolidated group for financial accounting purposes.

8.For the purpose of this Article, the consolidated group for financial accounting purposes consists of all entities which are fully included in consolidated financial statements drawn up in accordance with the International Financial Reporting Standards or the national financial reporting system of a Member State. The taxpayer may be given the right to use consolidated financial statements prepared under other accounting standards.

Back to top

Options/Help

Print Options

Close

Legislation is available in different versions:

Latest Available (revised):The latest available updated version of the legislation incorporating changes made by subsequent legislation and applied by our editorial team. Changes we have not yet applied to the text, can be found in the ‘Changes to Legislation’ area.

Original (As adopted by EU): The original version of the legislation as it stood when it was first adopted in the EU. No changes have been applied to the text.

Close

See additional information alongside the content

Geographical Extent: Indicates the geographical area that this provision applies to. For further information see ‘Frequently Asked Questions’.

Show Timeline of Changes: See how this legislation has or could change over time. Turning this feature on will show extra navigation options to go to these specific points in time. Return to the latest available version by using the controls above in the What Version box.

Close

Opening Options

Different options to open legislation in order to view more content on screen at once

Close

More Resources

Access essential accompanying documents and information for this legislation item from this tab. Dependent on the legislation item being viewed this may include:

  • the original print PDF of the as adopted version that was used for the EU Official Journal
  • lists of changes made by and/or affecting this legislation item
  • all formats of all associated documents
  • correction slips
  • links to related legislation and further information resources
Close

Timeline of Changes

Close

More Resources

Use this menu to access essential accompanying documents and information for this legislation item. Dependent on the legislation item being viewed this may include:

  • the original print PDF of the as adopted version that was used for the print copy
  • correction slips

Click 'View More' or select 'More Resources' tab for additional information including:

  • lists of changes made by and/or affecting this legislation item
  • confers power and blanket amendment details
  • all formats of all associated documents
  • links to related legislation and further information resources