835AAC. Interest limitation

(1) This section shall apply to a relevant entity for an accounting period where—

(a) the relevant entity is not, at any time in that accounting period, a standalone entity,

(b) the relevant entity has a disallowable amount greater than zero in respect of the accounting period, and

(c) the exceeding borrowing costs of the relevant entity exceeds the de minimis amount.

(2) For the purposes of determining whether the exceeding borrowing costs of a relevant entity exceeds the de minimis amount for an accounting period—

(a) in a case in which an amount of deductible interest equivalent is deducted against profits chargeable to tax at the P rate, the amount of that deductible interest equivalent shall be adjusted as follows:

IE_ded-adj = IE_ded x (T rate/P rate)

where—

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

IE_ded is the amount of deductible interest equivalent in respect of the relevant entity for the accounting period deducted against profits chargeable to tax at the P rate,

(b) in a case in which an amount of taxable interest equivalent is chargeable to tax at the P rate, the amount of that taxable interest equivalent shall be adjusted as follows:

IE_tax-adj = IE_tax x (T rate/P rate)

where—

IE_tax-adj is the adjusted amount of taxable interest equivalent in respect 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 chargeable to tax at the P rate,

(c) in a case in which an amount of deductible interest equivalent is deducted against chargeable gains chargeable to tax at the CGT rate, the amount of that deductible interest equivalent shall be adjusted as follows:

IE_ded-adj = IE_ded x (T rate/CGT rate)

where—

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

IE_ded is the amount of deductible interest equivalent in respect of the relevant entity for the accounting period deducted against chargeable gains chargeable to tax at the CGT rate,

(d) in a case in which an amount of deductible interest equivalent in respect of the legacy debt of the relevant entity is deducted against profits chargeable to tax at the P rate, the amount of that deductible interest equivalent shall be adjusted as follows:

IE_LD-ded-adj = IE_LD-ded x (T rate/P rate)

where—

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

IE_LD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period deducted against profits chargeable to tax at the P rate, and

(e) in a case in which an amount of deductible interest equivalent in respect of the legacy debt of the relevant entity is deducted against chargeable gains chargeable to tax at the CGT rate, the amount of that deductible interest equivalent shall be adjusted as follows:

IE_LD-ded-adj = IE_LD-ded x (T rate/CGT rate)

where—

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

IE_LD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period deducted against chargeable gains chargeable to tax at the CGT rate.

(3) Subject to section 835AAL, and subsections (4) and (5), where this section applies to a relevant entity for an accounting period, the amount of tax payable (within the meaning of section 959A) by the relevant entity for the accounting period, or where there is no amount of tax payable due to an insufficiency of income, profits or gains, the amount of any loss or excess arising to the relevant entity in an accounting period, but for the application of this Part, shall be adjusted by reducing the amount of interest equivalent that, but for this Part, would have been deducted in the calculation of that tax payable or that loss or excess, as the case may be, by the disallowable amount until the disallowable amount has been exhausted.

(4) For the purposes of subsection (3), where the interest equivalent mentioned in that subsection is deducted against profits chargeable to tax at the P rate, or treated as reducing the corporation tax payable on profits chargeable to tax at the P rate, then the amount by which the interest equivalent shall be reduced in respect of a disallowable amount shall be calculated by applying the following fraction:

T rate/P rate.

(5) For the purposes of subsection (3), where the interest equivalent mentioned in that subsection is deducted against chargeable gains, or treated as reducing the corporation tax payable on profits chargeable to tax at the CGT rate, then the amount by which the interest equivalent shall be reduced in respect of a disallowable amount shall be calculated by applying the following fraction:

T rate/CGT rate.

(6) Where a reduction of interest equivalent in accordance with subsection (3) reduces an amount of interest equivalent deducted in connection with the provision of a specified intangible asset, by reference to which allowances referred to in section 291A(6)(a)(i) are made, then for the purposes of section 291A(6), the aggregate amount for an accounting period referred to in section 291A(6)(a) shall be an amount calculated by reference to the interest equivalent so reduced.