Explanatory note

These Regulations provide the method of determining the “relevant percentage” in relation to a debt owed to a company which is owed or guaranteed by an overseas State authority (or payment of which is or may be prevented or restricted by an overseas State). By virtue of section 88B(1) of the Income and Corporation Taxes Act 1988 the “relevant percentage” of such a debt is the maximum amount of that debt which may be estimated to be bad for the purposes of section 74(j) of that Act.

Regulation 1 provides for citation and commencement.

Regulation 2 contains definitions.

Regulation 3(1) and (2) provides that the relevant percentage of a debt is to be determined by

• finding the numerical values attributed to various factors by Schedule 1 (which relate to the overseas State and its ability to repay, or make payments of interest on, its debts) which are applicable at the end of the period of account of the company;

• aggregating those numerical values with the values attributed by Schedule 1 to factors applicable at the end of each of the four periods of three months which end with the period ending three months before the end of the period of account;

• averaging the result; and

• finding the percentage shown in Schedule 2 as corresponding to that average.

Regulation 3(3) and (4) modifies the process of aggregation and averaging when a numerical value of ten or more is attributed for the first time to factors relating to a particular State. Regulation 3(5) reduces the numerical values attributed at the end of a period to certain of those factors by half when the aggregate of all the numerical values attributed at that date is less than 15.

Regulation 4 contains transitional provisions excluding aggregation and averaging in relation to periods of account of a company ending before 20th March 1990 and modifying the process of aggregation and averaging in relation to periods ending before 20th December 1990.