835AAB. Interpretation (Chapter 2)

(1) In this Chapter—

“legacy debt” means a debt the terms of which were agreed before 17 June 2016, together with any contract entered into before or after that date with the sole purpose of eliminating or reducing interest rate risk on that debt, but where the terms of that debt include provision for an amount of principal not yet drawn down at that date, such principal shall only be considered an agreed term of that debt to the extent the lender is legally obliged to make available such amounts upon the happening of milestones as set out in the terms agreed before 17 June 2016;

“milestone” means a pre-determined deliverable or project phase defined in the terms of a debt, connected with the drawdown of principal, but does not include a call by the borrower for drawdown of principal.

(2) The deductible interest equivalent in respect of legacy debt of a relevant entity for an accounting period is the lower of—

(a) the deductible interest equivalent that arises on the legacy debt in the accounting period, and

(b) the deductible interest equivalent that would have arisen on the legacy debt in the accounting period in accordance with the terms of the legacy debt as they stood on 17 June 2016.

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(2A) Where a debt, consisting in part of legacy debt and in part of debt which is not legacy debt, is repaid in part, the part so repaid shall be treated for the purposes of this Part as being a repayment of that part of the debt which is legacy debt in priority to that part of the debt which is not legacy debt.

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(3) For the purposes of this Part, the ‘net interest equivalent’ in respect of a relevant entity for an accounting period shall be calculated as follows:

IE_net = (IE_ded - IE_LD-ded) - IE_tax

where—

IE_net is the amount of net interest equivalent in respect of the relevant entity for the accounting period,

IE_ded is the amount of deductible interest equivalent in respect of the relevant entity for the accounting period,

IE_LD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period, and

IE_tax is the amount of taxable interest equivalent in respect of the relevant entity for the accounting period.

(4) Where the net interest equivalent in respect of a relevant entity for an accounting period is greater than or equal to zero, it shall be referred to in this Part as ‘exceeding borrowing costs’ and where the net interest equivalent in respect of a relevant entity for an accounting period is less than zero, it shall be referred to in this Part as ‘interest spare capacity’.

(5) In this Part, the EBITDA in respect of a relevant entity for an accounting period shall be the greater of zero and the amount calculated as follows:

R + I + FT + [(Cap_allow - IE_{ded allow}) - (Cap_charge - IE_{ded charge})] + IE_LD-ded

where—

R is the relevant profit or relevant loss, as the case may be, of the relevant entity for the accounting period,

I is the net interest equivalent of the relevant entity for the accounting period,

FT is the amount deducted in respect of foreign tax in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

Capallow is the amount of allowances in respect of capital expenditure under Parts 9, 24 and 29 made to a relevant entity, and the amount in respect of the non-finance element of finance lease payments deducted in calculating that entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

Capcharge is the amount of charges in respect of capital expenditure under Parts 9, 24 and 29 made on a relevant entity in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

IEded allow is the amount of deductible interest equivalent referable to allowances in respect of capital expenditure under Parts 9, 24 and 29 made to a relevant entity in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

IEded charge is the amount of deductible interest equivalent referable to charges in respect of capital expenditure under Parts 9, 24 and 29 made on a relevant entity in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period, and

IELD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period.