The government is consulting until 4 August 2016 on the detail of the new rules for restricting the tax deductibility of corporate interest expense, expected to apply from 1 April 2017 (see www.bit.ly/1kvUMKR).
The government is consulting until 4 August 2016 on the detail of the new rules for restricting the tax deductibility of corporate interest expense, expected to apply from 1 April 2017 (see www.bit.ly/1kvUMKR). This follows a high level consultation in October 2015 and the government’s announcement at Budget 2016 of proposals based on the approach recommended in the OECD’s report on action 4 of the BEPS project. These involve a limit based on 30% of EBITDA, with a group de minimis threshold of £2m, which the government estimates will exclude 95% of groups from the rules. The existing worldwide debt cap rules will be repealed.
The consultation contains 46 questions, based around the following set of rules:
· a fixed ratio rule limiting a group’s UK tax deductions for net interest expense to 30% of its UK EBITDA;
· a group ratio rule based on the net interest to EBITDA ratio for the worldwide group;
· a group de minimis threshold, allowing all groups to deduct net UK interest expense up to £2m;
· rules to ensure that the restriction does not impede the provision of private finance for certain public infrastructure in the UK where there are no material risks of BEPS; and
· allow the carry forward of restricted interest indefinitely and of spare capacity for up to three years, to prevent unwarranted restrictions arising from volatility in earnings and interest.
Where the actual period of account for the group straddles the 1 April 2017 commencement date, the rules will apply on the basis that the group prepares accounts for two notional periods of account, with the first one ending on 31 March 2017 and the second commencing on 1 April 2017.
Writing in this week’s Tax Journal, Daniel Head and John Monds explain: ‘The challenge for UK business is to assess the impact of these new rules, without also having clarity on how other tax jurisdictions will implement the OECD’s recommendations.’
The government is consulting until 4 August 2016 on the detail of the new rules for restricting the tax deductibility of corporate interest expense, expected to apply from 1 April 2017 (see www.bit.ly/1kvUMKR).
The government is consulting until 4 August 2016 on the detail of the new rules for restricting the tax deductibility of corporate interest expense, expected to apply from 1 April 2017 (see www.bit.ly/1kvUMKR). This follows a high level consultation in October 2015 and the government’s announcement at Budget 2016 of proposals based on the approach recommended in the OECD’s report on action 4 of the BEPS project. These involve a limit based on 30% of EBITDA, with a group de minimis threshold of £2m, which the government estimates will exclude 95% of groups from the rules. The existing worldwide debt cap rules will be repealed.
The consultation contains 46 questions, based around the following set of rules:
· a fixed ratio rule limiting a group’s UK tax deductions for net interest expense to 30% of its UK EBITDA;
· a group ratio rule based on the net interest to EBITDA ratio for the worldwide group;
· a group de minimis threshold, allowing all groups to deduct net UK interest expense up to £2m;
· rules to ensure that the restriction does not impede the provision of private finance for certain public infrastructure in the UK where there are no material risks of BEPS; and
· allow the carry forward of restricted interest indefinitely and of spare capacity for up to three years, to prevent unwarranted restrictions arising from volatility in earnings and interest.
Where the actual period of account for the group straddles the 1 April 2017 commencement date, the rules will apply on the basis that the group prepares accounts for two notional periods of account, with the first one ending on 31 March 2017 and the second commencing on 1 April 2017.
Writing in this week’s Tax Journal, Daniel Head and John Monds explain: ‘The challenge for UK business is to assess the impact of these new rules, without also having clarity on how other tax jurisdictions will implement the OECD’s recommendations.’
