Revenue Note for Guidance

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Revenue Note for Guidance

835AAI Equity Ratio

Summary

This section sets out the rules in relation to the equity ratio.

Details

(1) Provides that the ‘ratio of equity over total assets’ is calculated as equity over total assets expressed as a percentage. Equity includes the share capital, share premium and reserves of a relevant entity, worldwide group, or single company worldwide group, as applicable. The figures to be used are those disclosed in the financial statements of the relevant entity, worldwide group or single company worldwide group, as applicable, prepared in accordance with international accounting standards or Irish generally accepted accounting practice, or an alternative body of accounting standards.

(2) Provides that in calculating the ratio of equity over total assets for a single company worldwide group, the equity amount must be increased by an amount in respect of the debt owing to associated enterprises by the relevant entity, where that debt gives rise to deductible interest equivalent.

(3) This section applies to a relevant entity in respect of an accounting period where:

  1. the relevant entity’s equity ratio is no lower than two percentage points below the worldwide group’s equity ratio based on the ultimate consolidated financial statements of the worldwide group in which the relevant entity’s accounting period ends, or
  2. where the relevant entity is a member of a single company worldwide group, where the relevant entity’s equity ratio is no lower than two percentage points below the single company worldwide group’s equity ratio based on the financial statements in which the relevant entity’s accounting period ends.

(4) If, in the last 6 months of an accounting period, a scheme or arrangement is put in place which results in an increase in the equity of the relevant entity, the effect of that scheme or arrangement will be ignored for the purposes of calculating the relevant entity’s ratio of equity over total assets for that accounting period unless it can be shown that the scheme or arrangement was put in place for bona fide commercial reasons and not does not form part of any scheme or arrangement of which the main purpose, or one of the main purposes is to ensure the application of the relief under this section.

(5) Provides that where it is reasonable to consider that the purpose or one of the main purposes of an arrangement, or part of an arrangement, is the avoidance of an increase in the amount of equity used in the calculation of the ratio of equity over total assets for a single company worldwide group as required under subsection (2), subsection (2) applies as if the arrangement had not been entered into.

(6) Provides that where this section applies, a relevant entity may make an election in respect of an accounting period subject to section 835AAJ (2) and (3).

(7) Where an election is made under subsection (6), section 835AAC will not apply to a relevant entity in respect of the accounting period, such that no interest restriction arises under this Part.

Relevant Date: Finance Act 2021