Commentary

D1.1408 Corporate interest restriction—basis of computation

Corporate tax
Corporate tax | Commentary

D1.1408 Corporate interest restriction—basis of computation

Corporate tax | Commentary

Corporate interest restriction—basis of computation

D1.1408 Corporate interest restriction—basis of computation

There are several principles which need to be understood before being able to calculate the interest disallowance under the fixed ratio method and the group ratio method under the corporate interest restriction (CIR) rules. These principles include the following:

  1.  

    •     worldwide group basis

  2.  

    •     periods of account

  3.  

    •     acceptable GAAP, and

  4.  

    •     relevant accounting periods and disregarded periods

Worldwide group basis

Unlike most taxing provisions, the CIR works on a group rather than a company-by-company basis1. What this means is that most calculations required by the rules are carried out at the group level, with allocations of any interest restrictions (or reactivations) to individual companies within the charge to UK corporation tax being made afterwards. Many of the calculations require the extraction and aggregation of figures from either or both of the financial statements of the companies subject to UK corporation tax and the consolidated income statement of the worldwide group.

A worldwide group is defined in the same way as under IFRS2. A worldwide group usually refers to an ultimate parent and each of its consolidated subsidiaries although it is possible to have a single-company worldwide group3. The ultimate parent must be a relevant entity which is4:

  1.  

    •     a company, or

  2.  

    •     an entity whose shares, or other interests are listed on a recognised stock exchange with no participator holding more than 10% by value of all shares/other interests

A company means any body corporate or unincorporated association but excludes

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