June Budget – Worldwide Debt Cap
The Government are to introduce changes to the “worldwide debt” cap which had been initially announced earlier this year. The worldwide debt cap works by restricting relief for UK financing costs where these costs exceed the financing costs of the worldwide group.
A total of fourteen changes are to be introduced following consultation with businesses and their advisers on the practical application of the debt cap. All the changes, with one exception, will take effect for worldwide accounting periods beginning on or after 1 January 2010. The exception is the extension of the scope of “relevant assets” and “relevant liabilities” for the gateway test, where groups may elect for the change to apply only prospectively.
The proposed changes include:
- Three measures designed to ensure that, where a UK figure is being compared with a worldwide figure, the same amount is included in respect of the same borrowing;
- Two measures specifically relating to securitisations;
- Clear statements that a limited liability partnership cannot be the ultimate parent of a group of companies for debt cap purposes;
- Any distributions made by industrial and provident societies, which are normally treated as interest for tax purposes, will be excluded from the financing expenses of such companies.
The relevant legislation is to be introduced in the next Finance Bill.