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Corporate Interest Restriction: Elections deadline approaching

Corporate Interest Restriction

What Power & Utilities firms need to know ahead of the forthcoming CIR deadline


Head of Tax for Energy

KPMG in the UK


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Corporate Interest Restriction – deadlines impending

Many power & utilities companies are considering the impact of the new Corporate Interest Restriction (CIR) rules in force from 1 April 2017 that can act to restrict tax relief for both related and third party interest costs.

Here we layout the key decisions required to be made by companies ahead of the forthcoming deadline of 31 March 2018. Please contact us should you wish to discuss further.

Public Infrastructure Exemption (PIE)

A “qualifying infrastructure company” may elect into the PIE to exclude its third party interest costs from a disallowance under the CIR, and in some specific circumstances, certain ‘grandfathered’ related party interest costs.

Generally, a PIE election must be made prior to the period it applies to, however, there is a special transitional rule allowing the election for any accounting period beginning before 1 April 2018 to be made at any time prior to 1 April 2018. Similar time limits apply to a related election modifying how the PIE applies to joint ventures.

An additional PIE joint election can allow two or more companies in same worldwide group to combine income and assets when applying the PIE test. Again, the general rule is that this election must be made before the date from which the election is intended to take effect, but the transitional rules allows any such election made before 1 April 2018 to specify a date from which it has effect and which can be before the date on which the election is made.

Once a company elects into the PIE regime, it is generally “locked in” for five years, so it is necessary to model the impact over the longer term before determining whether to elect into the regime.

Application of the Disregard Regulations (DR)

This allows a company to notionally elect into the DR for CIR purposes in calculating its tax interest income and expense and tax EBITDA. This requires fair value movements on derivatives to be disregarded for tax purposes and replaced by alternative accruals amounts.

Elections where the ultimate parent does not prepare group accounts

Such elections modify a group’s period of account where the ultimate parent of the group does not prepare consolidated accounts.

Appointment of a reporting company

Also, for groups where the first period of account ends on or before 30 September 2017 this is the deadline for appointing a reporting company. For groups with an accounting period ending on 31 December 2017, the deadline for appointing a reporting company is 30 June 2018. There are various benefits from appointing a reporting company, including:

  • Coordination of CIR calculations across a group;
  • Flexibility regarding the allocation of any disallowance of interest under the CIR;
  • Preserve ability to carry forward unused interest allowance (including net tax-interest income where relevant);
  • Ability to make CIR elections increasing the interest allowance.

In practice, we are finding that most groups impacted by CIR will want to appoint a reporting company.
Groups will need to ensure they leave sufficient time to comply with the procedural formalities associated with filing this notice. In particular, the notice will need to be authorised by at least 50% of non-dormant UK group companies.

How can KPMG help?

  • Initial impact assessment:
    - To identify the CIR group(s) including the ultimate parent;
    - Identifying the period of account (which determines the compliance deadlines,
      including when elections should be made and reporting company
      appointment deadlines;
    - Formulating a plan for managing the compliance process.
  • Assistance with the calculations of the aggregate net tax-interest expense for the CIR group and how much (if any) must be disallowed by CIR under:
    - £2m de minimis allowance;
    - Fixed Ratio Method;
    - Group Ratio Method;
    - Other elections (e.g. Public Infrastructure Exemption).

These workings can support decisions on how any disallowance is allocated between group companies.

  • Assistance with compliance obligations, including:
    - Filing of elections and appointment of a reporting company for the UK CIR group;
    - Assessment as to whether a full or abbreviated return should be filed;
    - Preparation and submission of CIR return;
    - Assistance in calculation of corporation tax payments on account and quarterly instalment payments;
    - Assistance in determining how the rules impact the calculation of current and deferred tax for tax reporting purposes under IFRS and UK GAAP.
  • Applying for non-statutory business clearances from HMRC on specific fact patterns.
  • Advice, including financial and tax modelling, on the impact of the rules in the context of M&A transactions, new investments and loans, refinancing and guarantee arrangements.
    If you have any questions regarding the impending Corporate Interest Restriction deadline, please contact Claire Angell.

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