This week’s article continues our look at the interaction of the CIR rules with M&A transaction considerations.
This is the twelfth of our series of articles looking at some of the detail of the new corporate interest restriction (CIR) rules. The CIR rules were removed from Finance Bill 2017 and we are waiting to see if they will reappear in the promised summer Finance Bill. In the meantime, we would recommend that groups continue to assume that the rules will apply from 1 April 2017. This week we continue last week’s M&A theme by looking at related parties, modelling the implications of the CIR rules, the impact buying and selling companies has on elections that have been made and ensuring that information is available to prepare the CIR calculations.
If a company elects to apply the CIR rules using the group ratio method, the interest capacity is based, in part, on a measure of the net group-interest expense derived from the group accounts (qualifying net group-interest expense). For these purposes, interest like-expenses payable to a related party are not included, thereby reducing the capacity to deduct interest.
The CIR rules contain various elections and, where companies are purchased or sold, it will be necessary to assess the impact of elections on the acquired company or group.
For example, where a company becomes a member of a new CIR group, any elections made in respect of the ‘old’ CIR group will cease to apply to the company and calculations will be based on whether the ‘new’ CIR group has made an election.
Information required for the CIR calculations
If companies are purchased or sold by a group on or after 1 April 2017, the contract should ensure that the information required to complete the CIR calculations will be made available and that the company being sold will consent to an election if required. The attribution of disallowed and reactivated interest should also be confirmed, including the apportionment between the old and new groups.
Modelling impact of the CIR rules
The previous articles in this series can be found here:
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