Autumn Budget 2017: Amendments to the corporate interest restriction rules

The Corporate Interest Restriction (CIR) rules were enacted in the Finance (No.2) Act 2017 on 16 November 2017. These rules were introduced in order to prevent larger corporate bodies from reducing their taxable profits by way of substantial UK interest costs. These measures affect large businesses subject to UK corporation tax whose net interest and other financing costs exceed £2 million per annum. The current rules took effect from 1 April 2017 and can be found in Part 10 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010).

It is proposed that the 2017/18 and 2018/19 Finance Bills will include some technical changes so that the rules operate as they were intended. The proposed amendments include:

  • Ensuring that derivatives hedging financial trades that don’t meet the definition of a banking business are not excluded from the CIR rules.
  • The calculation of group-earnings before interest, tax, depreciation and amortisation (EBITDA), which forms the basis of the CIR rules, will be updated to include the Research and Development Expenditure Credits (RDEC).
  • Amending the infrastructure rules to ensure than insignificant amounts of non-taxable income do not affect their operation.
  • The time limit for making an election to be a qualifying infrastructure company is to be changed to the last day of the accounting period where the election first applies.
  • Third parties which acquire assets from a qualifying infrastructure company (QIC) will not be automatically treated as making an election to be a QIC.
  • The infrastructure rules will be tightened so that the limitation on relief for related party interest cannot be avoided by the use of a conduit company to provide the finance.
  • Aligning the group definition with accounting standards, to prevent asset managers from causing otherwise unrelated businesses from being grouped together.
  • Changes to the administrative rules where an interest restriction return is submitted so that relevant companies will be required to amend the tax returns where their tax position has changed.

UK companies operating within worldwide groups with net aggregate interest exceeding £2 million will be within these rules and the changes proposed will be pertinent to their final position and compliance obligations.