Finance Bill 2020-21: corporate interest restriction rules amended

HMRC has announced technical changes to interest restriction rules ‘to make sure the regime works as intended’ in line with the OECD’s Base Erosion and Profit Shifting (BEPS) framework

HMRC has released amendments to corporate interest restriction (CIR) for corporation tax to clarify the way special provisions apply to real estate investment trusts (REITs) and make sure no penalties arise for late filing if there is a reasonable excuse for failing to do so.

The CIR restricts the ability of large businesses to reduce their taxable profits by expensing excessive interest for companies based in the UK. It encourages alignment of the location of taxable profits with the location of economic activity and is consistent with the UK’s more territorial approach to corporation tax, the Treasury said.

The move will affect those businesses that incur net interest expense and other financing costs of more than £2m a year.

The CIR rules were first introduced in Finance (No. 2) Act 2017 and came into effect on 1 April 2017. The rules were the UK’s response to Action 4 of the BEPS Action Plan, which made recommendations in relation to corporate interest deductibility.

The first proposed revision (on REITS) will have effect from 21 July 2020. The second proposed revision (for late filing reasonable excuses) will be treated as having effect from 1 April 2017 when the CIR rules began.

The rules are at Part 10 of Taxation (International and Other Provisions) Act 2010.

The proposed revisions will see legislation introduced in Finance Bill 2020-21. The amendments will:

  • clarify the way special provisions in the CIR rules apply in the context of a real estate investment trust (REIT), to take into account that UK property businesses of non-resident companies are now within the charge to corporation tax rather than income tax (section 452)
  • make sure that no penalties arise for the late filing of an interest restriction return if there is a reasonable excuse for the failure, bringing the administrative rules in line with those for corporation tax self assessment (Schedule 7A)

The amendments are not expected to have a financial impact on the Exchequer or any operational impact.

Technical amendments to the Corporate Interest Restriction for Corporation Tax

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