HMRC have launched a consultation, Tax deductibility of corporate interest expense: consultation on detailed policy design and implementation, to obtain views about how the restriction on the tax deductibility of interest should be legislated.
The new rules are required in order to comply with the BEPS agreement and the OECD plan set out in October 2015.
In summary, the proposals are that:
- All groups will be able to deduct net UK interest of up to £2 million; groups or stand-alone companies with a net-interest expense of less than £2 million will not be affected by these rules.
- A fixed ratio rule will be introduced which limits a group’s UK tax deductions for net interest expense to 30% of its UK earnings before interest, tax, depreciation and amortisation (EBITDA).
- An optional group ratio rule will also be introduced allowing groups to obtain a higher level of deductions in line with the group’s position.
The consultation opened on 26 May 2016 and will close on 4 August 2016. It is expected that legislation will be included in Finance Bill 2017.
Link to HMRC document: Tax deductibility of corporate interest expense: consultation on detailed policy design and implementation.
