835AAC Interest Limitation

Summary

This is the main operational provision under this part which applies the interest restriction.

Details

(1) Provides that an interest limitation applies where the relevant entity

• is not a standalone entity,
• has a disallowable amount in respect of the accounting period, and
• the exceeding borrowing costs of the relevant entity exceed the de minimis amount (being €3 million in a 12-month accounting period).

(2) This subsection provides the calculation to determine if the exceeding borrowing cost exceeds the de minimis amount. As the exceeding borrowing costs consists of amounts which have been grossed up to take account of income and expenses taxable and deductible at different tax rates, those amounts must be grossed back down for the purposes of assessing whether the de minimis threshold has been breached.

(3) Subject to the rules pertaining to interest groups and where this section applies, the tax payable, or the amount of the tax loss where there is no tax payable, by a relevant entity will be calculated by reducing the amount of interest equivalent that would have been deducted but for this Part by the disallowable amount, until such time as the disallowable amount has been exhausted.

(4) Where interest equivalent would have been deducted from profits chargeable to corporation tax at 25%, or treated as reducing the corporation tax payable on profits chargeable corporation tax at 25%, then the amount by which the interest equivalent will be reduced by the disallowable amount in accordance with subsection (3) is calculated by multiplying the disallowable amount by 12.5% divide by 25% i.e. as the disallowable amount has a tax value of 12.5%, it must be grossed back down for the purposes of reducing the amount of interest equivalent that is deducted from profits chargeable to corporation tax at the 25% rate.

(5) Where interest equivalent is deducted from chargeable gains taxable at the ‘CGT rate’, then the amount by which the interest equivalent will be reduced by the disallowable amount in accordance with subsection (3) is calculated by multiplying the disallowable amount by 12.5% divided by the applicable ‘CGT rate’ i.e. as the disallowable has a tax value of 12.5%, it must be grossed back down for the purposes of reducing the amount of interest equivalent that is deducted from chargeable gains taxable at the ‘CGT rate’.

(6) This subsection provides that where a disallowable amount reduces the amount of interest deductible in connection with the provision of a specified intangible asset, then for the purposes of calculating the aggregate of capital allowances and deductible interest for an accounting period in connection with the provision of a specified intangible asset under section 291A(6), the amount of interest as reduced by the disallowable amount is taken into account.

Relevant Date: Finance Act 2021