CFM95480 - Interest restriction: groups, periods and financial statements: financial statements: no financial statements

TIOPA10/S484 and TIOPA10/S485

There might also be situations where the ultimate parent does not draw up financial statements for the group: for example, where the ultimate parent is a Delaware LLC and is not required to prepare consolidated accounts.

The rules here follow the rules for establishing the period of account for the worldwide group (S480). Where the ultimate parent does not draw up financial statements for a period of account then the rules treat international accounting standards (IAS) financial statements as having been drawn up for that period.

This applies in the following circumstances:

  • If the ultimate parent of a multi-company group fails to draw up financial statements for the group, but does draw up financial statements for itself;
  • Accounts-free periods; or
  • Where an election is made to alter the default period of account (S484(3)).

Example

Q plc is a UK quoted company, which prepares consolidated accounts for itself and its subsidiaries, drawing up the accounts to 30 June each year. In 2011, Q plc was taken into private ownership and de-listed. As part of this change, the shares in Q plc are acquired by a Jersey company, R Ltd (which has no other subsidiaries). R Ltd is owned by a consortium of investors, none of which controls the company.

The ultimate parent of the group is therefore R Ltd. Although Q plc continues to draw up group accounts to 30 June, R Ltd does not prepare consolidated accounts - it prepares individual accounts to 31 December (and these accounts are available to the directors of Q plc).

In order to apply the Corporate Interest Restrictions rules, Q plc and its subsidiaries must by default hypothesise that R Ltd has prepared consolidated accounts to 31 December under IAS, and derive the necessary figures from those notional accounts.

As this might involve considerable work, elections in the rules provide some flexibility. In this example, the group could make two elections. The group could elect under S484(3) to ignore R Ltd’s financial statements, giving rise to an accounts-free period commencing on 1 April 2017. It could then elect under S486 to alter the default period of account so that the first period of account runs from 1 April 2017 to 30 June 2018. In this case, subsequent periods would also end on 30 June.

These elections do not have any effect on the composition of the worldwide group, for example, a group cannot elect that a different company be the ultimate parent where the correct ultimate parent has not prepared financial statements. The elections only act to alter the default period of account to simplify the process of calculating the relevant figures.