Commentary

D1.1485 Debt cap provisions—anti-avoidance

Corporate tax
Corporate tax | Commentary

D1.1485 Debt cap provisions—anti-avoidance

Corporate tax | Commentary

D1.1485 Debt cap provisions—anti-avoidance

The debt cap provisions were repealed from 1 April 2017 and replaced by the corporate interest restriction regime (CIR).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 anti-avoidance rules1 can be split into four main sections:

  1.  

    (a)     the first combats schemes designed to remove a large group from the debt cap rules entirely,

  2.  

    (b)     the second combats schemes designed to manipulate the gateway test2,

  3.  

    (c)     the third combats schemes manipulating the main comparison test and the exemption of certain financing income3, and

  4.  

    (d)     the fourth combats schemes manipulating intra-group financing income4

HMRC considers that these anti-avoidance rules have wide scope. Each of the anti-avoidance rules is subject to a purpose test5 such that they only apply if the main purpose, or one of the main purposes, of entering into the scheme is to frustrate the worldwide debt cap rules.

The definition of a scheme is drafted widely and regulations may be made to designate 'excluded schemes' to which these anti-avoidance provisions will not apply6.

Schemes designed to remove a large group from the debt cap rules

For periods of account ending on or after 17 July 2012, anti-avoidance provisions apply if a large group attempts to remove itself from the application of the debt cap rules by ensuring that the group does not have any relevant group

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