Commentary

D1.1481 Debt cap provisions—'gateway' test

Corporate tax
Corporate tax | Commentary

D1.1481 Debt cap provisions—'gateway' test

Corporate tax | Commentary

D1.1481 Debt cap provisions—'gateway' test

The debt cap provisions were repealed from 1 April 2017 and replaced by the corporate interest restriction regime (CIR). The CIR places a limit on the amount of interest expenses and certain other financing costs that large businesses can deduct when calculating the profits subject to corporation tax. See D1.1401–D1.1470.

The gateway test is failed, and therefore the debt cap provisions apply, in respect of a period of account of the worldwide group if, for that period of account, the UK net debt (UND) of the group exceeds 75% of the worldwide gross debt of the group (WGD)1.

In all cases the gateway test will not be failed if, during the period of account, the group is a qualifying financial services group2. In essence, a group will be a qualifying financial services group if, in relation to the period of account, all or substantially all of the group's trading income is derived from qualifying activities. This, broadly, means lending activities, insurance activities and 'relevant dealing' in financial instruments (the 'trading income condition')3.

Many large domestic or outbound groups are likely to fail the gateway test unless they have substantial overseas borrowings.

The test is designed to be an approximation to the main rules and to filter

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