CFM99300 - Interest restriction: Interaction with other legislation

Priority rules

The CIR applies after most other tax rules that may impact the calculation of tax-interest amounts, such as transfer pricing and hybrid and other mismatch rules, but before the loss restriction rules.

Note that for transfer pricing purposes, the potential tax advantage is calculated without taking into account any CIR disallowances or reactivations (TIOPA10/S155(6)).

TIOPA10/382(1) defines a tax-interest expense amount as an amount which meets certain conditions and which are (or apart from TIOPA10/PT10 would be) brought into account for the purposes of corporation tax in a relevant accounting period of a company. S385(1) takes a similar approach as regards tax-interest income amounts. These tax-interest amounts form the starting point for determining the aggregate net tax-interest expense of the group (ANGIE) and it is this amount that may be subject to restriction by the CIR (S373). It follows that other provisions must first be applied to reach the starting point for application of the CIR.

Trading losses, unrelieved management expenses and non-trading loan relationship deficits of a company for a relevant accounting period are computed on the basis of amounts that have been adjusted to reflect the application of the CIR in any worldwide group period of account which are coincident with or overlap the accounting period. It follows that relief for losses and any restrictions on use of losses (for instance, see CTM05000) will similarly apply to the amounts computed after application of the CIR.

Interaction with Controlled Foreign Companies (CFC) legislation

The interaction of the CFC legislation with the CIR is governed by TIOPA10/S371SL and 371SLA.

The starting point is that a CFC is not to be regarded as a member of a group of companies or consortium for any provision of the Taxes Acts. But for the purposes of the CIR, it is treated as being a member of a CIR group of which it is the only UK member. The CIR is then applied in the same manner as to a single-company worldwide group. However, the CFC is not permitted to take into account the de-minimis amount in determining whether an interest restriction arises, nor in computing the interest capacity for a period of account.