Worldwide debt cap: expansion of ‘group’ definitions

Worldwide debt cap: expansion of ‘group’ definitions

Thu 06 Mar 2014

Groups that are within scope of the restriction on tax relief for finance cost under WWDC cannot now reduce or remove their exposure to a restriction by having group members that do not have ordinary share capital.  This change applies to accounting periods of a group starting on or after 5 December 2013.

The worldwide debt cap (“WWDC”) rules can restrict UK tax relief for finance cost (such as interest).  The  rules apply to the parent company and its 75% subsidiaries.

The new definition of a group for WWDC will now bring in any UK tax resident company which is economically part of a group but which does not have ordinary share capital.  Examples of such companies include companies limited by guarantee or companies having shares with variable or complex rights. 

 Also,  indirect ownership of a company can now be traced through intermediate entities such as companies that do not have ordinary share capital and entities that are not bodies corporate.

 The ultimate parent of a worldwide group is now regarded as beneficially entitled to the profits or assets of a UK group company, notwithstanding that intermediate entities in the ownership chain do not have ordinary share capital.

A consequence of these changes is that a company that is  not a member of the group for capital gains or group relief, on the basis, for example, that it is a company limited by guarantee, may be a group member for the purposes of the WWDC rules.

Groups where the parent company and 75% subsidiaries all have ordinary share capital are unaffected by these changes.

These rules are only likely to impact a small number of large corporate groups with complex capital structures.  These groups will need to consider the impact and determine if any more UK tax relief for finance costs will be restricted as a result.

Any corporate group which is concerned about the impact of these changes should get in touch with their usual Mazars contact.

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