Explanatory note

These Regulations make provision for transitional adjustments in connection with new Part 10 of the Taxation (International and Other Provisions) Act 2010 inserted by the Finance (No. 2) Act 2017 which make provision for the restriction of relief for interest and finance costs of multinational companies. The Regulations make provision for adjustments to calculations under Part 10 where the accounts of the worldwide group and the accounts of a company in the group give rise to mismatches on the commencement of the new provisions.

The Regulations have effect for periods of account of a worldwide group that begin on or after 1 April 2017, authority for the limited retrospective effect is given by section 495(2) of the Taxation (International and Other Provisions) Act 2010.

Regulation 2 makes provision for the financial statements for a worldwide group to be treated as being prepared on the basis that they recognise a loan relationship on an amortised cost basis of accounting where the loan relationship is subject to fair value accounting in the worldwide group’s financial statements and the amortised cost basis of accounting in the financial statements of the company which is party to the loan relationship.

Regulation 3 makes provision where a loan relationship exists between two companies in a worldwide group which was derecognised prior to the commencent of the new corporate interest restriction provisions when the loan became an intra-group loan. Provision is made for any gain or loss recognised in the financial statements of the worldwide group on derecognition of the loan relationship to be treated as brought into account over the remainder of the term of the loan.

Regulation 4 makes provision to deal with mismatches in respect of finance charges arising in relation to certain finance arrangements in connection with a contribution paid by an employer under a registered pension scheme in respect of which the employer is entitled to relief under Chapter 4 of Part 4 of the Finance Act 2004.

A Tax Information and Impact Note (TIIN) covering this instrument was published on 5 December 2016 alongside the draft clauses and explanatory notes for the Finance Bill 2017 and is available on the website at: https://www.gov.uk/government/publications/corporation-tax-tax-deductibility-of-corporate-interest-expense/corporation-tax-tax-deductibility-of-corporate-interest-expense.It remains an accurate summary of the impacts that apply to this instrument.