The new corporate interest restriction rules have now been in force for over a year. Our experience of the rules to date has taught us that the rules sometimes bite in unexpected ways, resulting in increased interest disallowance going forward, or the loss of tax attributes such as surplus interest allowances. It is particularly important that advice is taken on the impact of the rules when contemplating a transaction (e.g. purchase or sale of a company / companies or a business), refinancing or internal reorganisation of a group.
Examples of unexpected consequences include the below.
- A change of ultimate parent wipes out any excess debt cap and surplus interest allowances brought forward for the whole group. A simple sale of a group or insertion of a new topco can trigger this.
- Disallowed interest attaches to a company so is lost if that company is sold outside the group.
- A disposal which is tax free, either because it is overseas or because it qualifies for substantial shareholding exemption (SSE) can significantly reduce the group ratio.
- Overseas cancellations / capitalisations of debt, or "tax free" debt buy-ins, can lead to a disallowance under the interest restriction rules in some circumstances.
For further information please contact Graham Robinson or your usual PwC adviser.
