Taxation (International and Other Provisions) Act 2010 (c. 8)

[F1 Part 10] U.K. [F1 Corporate interest restriction]

Textual Amendments

F1 Pt. 10: the existing Pt. 10 renumbered as Pt. 11 (except for ss. 375, 376 which are repealed), the existing ss. 372-374, 377-382 renumbered as ss. 499-507 and a new Pt. 10 (ss. 372-498) inserted (with effect in accordance with Sch. 5 para. 25(1)-(3) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 1, 10(1)(2)(a)(3) (with Sch. 5 paras. 27, 32-34)

Modifications etc. (not altering text)

C1 Pt. 10 excluded by 2010 c. 4, s. 937NA (as inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 7)

C2 Pt. 10 excluded by 2010 c. 4, s. 938V(d) (as substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 9)

C3 Pt. 10 excluded by 2010 c. 4, s. 938N(e) (as substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 8)

[F1 CHAPTER 5 U.K. Interest allowance

Interest allowance U.K.

396 The interest allowance of a worldwide group for a period of account U.K.

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

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 of 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) where 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 U.K.

(1) For the purposes of section 396, the basic interest allowance of a worldwide 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—

• section 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 U.K.

(1) For the purposes of section 396, the basic interest allowance of a worldwide group for a period of account of the group, calculated using 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) See—

• 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”.

399 The group ratio percentage U.K.

(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—

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) “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—

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

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

400 The debt cap U.K.

(1) For the purposes of section 397 (and this section), “the fixed ratio debt 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 immediately 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) the 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) Where 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))—

where—

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.

(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))—

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 the 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 than 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 group 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”;

• section 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”.

[F2 400A Carry forward of excess debt cap: new holding company U.K.

(1) This section applies if—

(a) a company (“C”) ceases to be the ultimate parent of a worldwide group (“the old group”) because of a qualifying takeover, and

(b) another company (“N”) becomes the ultimate parent of a worldwide group (“the new group”) as a result of the takeover.

(2) For this purpose there is a qualifying takeover if there is a change in the ownership of C which is disregarded for the purposes of Chapters 2 to 6 of Part 14 of CTA 2010 as a result of section 724A of that Act where—

(a) C is the other company referred to as C in that section, and

(b) N is the new company referred to as N in that section.

(3) In determining in accordance with section 400 [F3 the new group’s fixed ratio debt cap] or group ratio debt cap for its first period of account, its excess debt cap generated in the immediately preceding period of account is taken to be that of the old group for the period of account of the old group [F4 ending on the day before the takeover day (see section 395A(3))].]

Textual Amendments

F2 S. 400A inserted (with effect in accordance with Sch. 11 para. 23 of the amending Act) by Finance Act 2019 (c. 1), Sch. 11 para. 4

F3 Words in s. 400A(3) substituted (with effect in accordance with Sch. 3 para. 30-36 of the amending Act) by Finance (No. 2) Act 2023 (c. 30), Sch. 3 para. 4(a)

F4 Words in s. 400A(3) substituted (with effect in accordance with Sch. 3 para. 30-36 of the amending Act) by Finance (No. 2) Act 2023 (c. 30), Sch. 3 para. 4(b)

Effect of group ratio (blended) election U.K.

401 Effect of group ratio (blended) election on group ratio percentage U.K.

(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 section.

(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 period 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 Add together the amounts found under Step 1.

(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) in 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 account.

(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) The 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 for 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 For each of the investor's periods of account, multiply the group ratio percentage found under Step 1 by the proportion found under Step 2.

• Step 4 Add together the amounts found under Step 3.

402 Effect of group ratio (blended) election on group ratio debt cap U.K.

(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 section.

(2) In section 400 (the debt cap), subsection (2)(a) is treated as if—

(a) it did not refer to the qualifying net group-interest expense of the group for the period, and

(b) instead it referred to the blended net group-interest expense of the group for the period, as determined in accordance with this section.

(3) The blended net group-interest expense of the group for the relevant period of account is determined by taking the following steps—

• Step 1 For each investor in the group whose applicable percentage for the purposes of section 401 is the percentage mentioned in subsection (4)(a) of that section, multiply the adjusted net group-interest expense of the group for the period by the investor's share in the group.

• Step 2 For each investor in the group whose applicable percentage for the purposes of section 401 is the percentage mentioned in subsection (4)(b) of that section, multiply the qualifying net group-interest expense of the group for the period by the investor's share in the group.

• Step 3 For each investor in the group whose applicable percentage for the purposes of section 401 is the percentage mentioned in subsection (4)(c) of that section, find the applicable net group-interest expense of the investor's worldwide group for the period (see subsections (4) to (8) of this section).

• Step 4 Add together the amounts found under Steps 1, 2 and 3.

(4) For the purposes of this section, the “applicable net group-interest expense” of the investor's worldwide group for a period of account is so much of the qualifying net group-interest expense of the investor's worldwide group for the period as relates to loans to, or other financial arrangements with, members of the investor's worldwide group that are used to fund (directly or indirectly) loans to, or other financial arrangements with, members of the worldwide group mentioned in subsection (1).

(5) Subsection (6) applies where periods of account of the investor's worldwide group (“the investor's periods of account”) are comprised in or overlap with (but are not coterminous with) the relevant period of account.

(6) The applicable net group-interest expense of the investor's worldwide group for the relevant period of account is the aggregate of so much of the applicable net group-interest expense of the investor's worldwide group for each of the investor's periods of account as is referable, on a just and reasonable basis, to the relevant period of account.

(7) Subsection (8) applies where—

(a) a loan is made to, or another financial arrangement is entered into with, a member of the investor's worldwide group, and

(b) the loan or other financial arrangement is—

(i) in part used to fund (directly or indirectly) loans to, or other financial arrangements with, members of the worldwide group mentioned in subsection (1), and

(ii) in part used for other purposes.

(8) In determining the applicable net group-interest expense of the investor's worldwide group for any period, the amount of the qualifying net group-interest expense of the investor's worldwide group for the period that is brought into account, in respect of the loan or other financial arrangement mentioned in subsection (7)(a), is confined to such amount as is referable, on a just and reasonable basis, to the use mentioned in subsection (7)(b)(i).

(9) In this section—

• “financial arrangements” does not include the holding of shares;

• “the investor's worldwide group” has the same meaning as in section 401.

403 Calculations under sections 401 and 402: investor worldwide groups U.K.

(1) This section applies—

(a) in determining, under section 401, the group ratio percentage of the investor's worldwide group for a period of account;

(b) in determining, under section 402, the qualifying net group-interest expense of the investor's worldwide group for a period of account.

(2) Where the group ratio (blended) election specifies that a particular election under Schedule 7A (“the investor's election”) is to be treated as having effect, or as not having effect, in relation to periods of account of the investor's worldwide group, the investor's election is to be so treated in determining the amounts mentioned in subsection (1).

(3) Where the group ratio (blended) election does not specify that a particular election under Schedule 7A (“the investor's election”) is to be treated as having effect, or as not having effect, in relation to periods of account of the investor's worldwide group, the investor's election is to be treated as having effect in determining the amounts mentioned in subsection (1) only if it was in fact made in relation to the period of account in question by a reporting company of the investor's worldwide group.

(4) In this section “the investor's worldwide group” has the same meaning as in section 401.

404 Meaning of “investor”, “related party investor” and investor's “share” U.K.

(1) An entity is an “investor” in a worldwide group if it has an interest in the ultimate parent of the group that entitles it to a proportion of the profits or losses of the group.

(2) An investor in a worldwide group is a “related party investor” of the group in relation to a period of account of the group if, throughout the period, it is a related party of the ultimate parent of the group.

(3) The “share” of an investor in a worldwide group, in relation to a period of account of the group, is the proportion (expressed as a percentage) of the profits or losses of the group that arise in the period to which the investor is entitled by virtue of the investor's interest in the group's ultimate parent.

(4) This section has effect for the purposes of this Part.]