Corporation Tax Act 2010 Explanatory Notes

Section 543: Profit: financing-cost ratio

1706.This section provides that if the result of the sum specified in subsection (2) is less than 1.25, “the excess” calculated in accordance with subsection (3) is charged to corporation tax. It is based on sections 115(1) to (3) and 134(1) of, and paragraph 4 of Schedule 17 to, FA 2006.

1707.This section enacts regulations 12 and 13 of SI 2006/2864. See Change 43 in Annex 1.

1708.Subsection (2)sets out the formula to calculate the ratio used to arrive at the “excess” in subsection (3). The definitions of “PP” and “PFC” refer to “property profits” and “property financing costs” and are defined further in section 544.

1709.This section applies to the relevant proportion of a joint venture company’s property profits and property financing costs in the same way as for any other member of a group UK REIT. See Change 43in Annex 1.

1710.Subsection (3)provides that the difference between the actual property financing costs of the UK REIT and the amount that would cause the sum specified in subsection (2) to be 1.25 (“the excess”), is charged to corporation tax. Subsections (4) and (5) provide that the excess amount is treated as if it were profits of residual business of the principal company of a group UK REIT or a company UK REIT. This means that the rate of tax is the main rate of corporation tax as mentioned in section 534(3).

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