Part 4Real Estate Investment Trusts
Assets etc
115Profit: financing-cost ratio
(1)The Treasury may make regulations that apply to a company to which this Part applies where the result of the sum specified in subsection (2) is less than 1.25 in respect of an accounting period.
(2)That sum is—
where—
Profits means the amount of the profits of C (tax-exempt) arising in the accounting period (before the offset of capital allowances), and
Financing Costs means the amount of the financing costs incurred in that period in respect of the business of C (tax-exempt).
(3)The regulations may cause a sum to be charged to tax, in accordance with the regulations, by reference to that part of the financing costs as a result of which the result of the sum specified in subsection (2) is less than 1.25.
(4)In subsections (2)(b) and (3) “financing costs” means the cost of debt finance; and in calculating the costs of debt finance in respect of an accounting period the matters to be taken into account include—
(a)costs giving rise to debits in respect of debtor relationships of the company under Chapter 2 of Part 4 of FA 1996 (loan relationships), other than debits in respect of exchange losses from such relationships (within the meaning of section 103(1A) and (1B) of that Act),
(b)any exchange gain or loss from a debtor relationship within the meaning of that Chapter in relation to debt finance,
(c)any credit or debit falling to be brought into account under Schedule 26 to FA 2002 (derivative contracts) in relation to debt finance,
(d)the financing cost implicit in a payment under a finance lease, and
(e)any other costs arising from what would be considered, in accordance with generally accepted accounting practice, to be a financing transaction.