Amendments to the corporate interest restriction rules have been announced as part for the Budget covering derivative contract debits and credits
The rules restrict the ability of large businesses to reduce their taxable profits through excessive UK interest expense. They are part of the government’s wider changes to encourage alignment of the location of taxable profits with the location of economic activity.
Some of the amendments are treated as having effect from 1 April 2017 when the rules commenced. The remainder of the amendments have effect from 1 January 2018.
Changes will be made to the rules about relevant derivative contract debits and credits to ensure that derivatives hedging a financial trade that is not a banking business are not inappropriately excluded from the rules.
Alongside that, changes will be made to the calculation of group-earnings before interest, tax, depreciation and amortisation (EBITDA) to align the treatment of Research and Development Expenditure Credits with the approach taken in the calculation of tax-EBITDA.
Amendments will also be made to the infrastructure rules, to ensure that insignificant amounts of non-taxable income do not affect their operation. Alongside that, the time limit for making an election to be a qualifying infrastructure company will be changed to the last day of the accounting period where the election first applies.
Staying with the infrastructure rules, changes will be made so that a third party which acquires an asset from a qualifying infrastructure company is not automatically treated as making an election to be a qualifying infrastructure company.
A further change to the infrastructure rules will see that the limitation on relief for related party interest cannot be avoided by using a conduit company to provide the finance.
The definition of a group will also change to align it with accounting standards and to ensure that asset managers do not cause otherwise unrelated businesses to be grouped together.
Finally, the administrative rules will change so that when an interest restriction return is submitted, companies will be required to amend their company tax returns if their tax position is changed.
The policy paper is available here.
Report by Calum Fuller
