UK Budget Tweaks Interest Restriction Regime | KPMG | CA

UK Budget Tweaks Interest Restriction Regime

UK Budget Tweaks Interest Restriction Regime

The UK presented its 2017 Spring Budget on March 8, 2017.

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The budget only contains a few tax announcements, including modifications to the new corporate interest restriction regime, previously introduced as draft legislation in Finance Bill 2017. The budget also extends the administrative simplification of the fast-track treaty relief corporate "passport" regime for withholding tax to assist foreign lenders and UK borrowers. The budget also reaffirms that new tax reform for rules regarding non-UK domiciled individuals will come into effect on April 6, 2017, as previously announced.

 

Select highlights from the 2017 Spring Budget are included below.

 

Interest deductibility
The new corporate interest regime is effective April 1, 2017 and applies to groups that have net interest expenses greater than £2 million. The rules will apply to limit interest deductions based on the interest capacity of the worldwide group, under a fixed ratio rule or group ratio rule. A modified debt-cap rule is intended to ensure that the net interest deduction does not exceed the total net interest of the worldwide group. The 2017 Spring Budget announced changes to the regime in an effort to ensure that the rules do not give rise to unintended consequences or impose unnecessary compliance burdens. The modifications include:

  • Amendments to the modified debt-cap rule to make it easier to utilize interest expenses which have been disallowed in an earlier period 
  • The treatment of interest on debt guaranteed by related parties as related-party interest will not apply to guarantees granted before March 31, 2017, nor would it apply to certain performance and intra-group guarantees 
  • An updated definition of interest that will now include income and expenses from dealing in financial instruments as part of a banking trade 
  • Rules that will be introduced for insurers regarding the calculation of interest on an amortized cost basis to provide a practical alternative to fair value accounting 
  • Amendments to optional alternative rules for public benefit infrastructure, so that they will be easier to apply in practice.

 

Details of the draft proposals will be released on March 20, 2017, after further draft clauses of Finance Bill 2017 are due to be published.

 

Withholding tax
In order to assist with foreign lenders and UK borrowers, the administrative simplification of the Double Tax Treaty Passport Scheme will be renewed and extended. This scheme simplifies access to reduced withholding tax rates on interest under the UK's double tax arrangements with other countries.

The UK will also introduce an exemption from withholding tax for interest on debt that is traded on a multilateral trading facility (i.e. a self-regulated trading venue). The government will release a consultation on March 20, 2017 on the implementation of the exemption.

 

New UK budget timetable
Finally, please note the UK will be changing its budget time table, and 2017 will be the last year with a Spring Budget. Budgets will be held in the Autumn, preceded by the publication of tax policy consultation summaries and draft legislation in the summer.

 

For more information, contact your KPMG adviser.

 

Information is current to March 14, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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