Corporate interest restriction webinar June 2017
Transcript of Corporate interest restriction webinar June 2017
Corporate Interest RestrictionBased on draft finance bill 2017 issued 20 March 2017—
28 June 2017
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Document Classification: KPMG Public
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
With you todayRob LantHead of Corporate Tax Partner, KPMG LLPTel: +44 (0)20 7311 [email protected]
Daniel HeadUK Head of Transfer PricingPartner, KPMG LLPTel: +44 (0)161 246 [email protected]
John MondsGlobal Transfer Pricing ServicesDirector, KPMG LLPTel: +44 (0)161 246 [email protected]
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Agenda
Where are we now?
Overview of the rules
Key issues & complexities
Compliance implications & managing the impact
What next?
Where are we now?
Where are we now?
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We are here!
2016 Consultation and draft legislation
20 March 2017Finance Bill 2017
31 March 2017Draft guidance published byHMRC
8 June 2017General election
Summer/Autumn 2017Measures likely to be reintroduced in a post election Finance Bill (with 1 April 2017 start date?)
25 April 2017Omission from FB 2017
1 April 2017Commencement?
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Document Classification: KPMG Public
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Why should you care?
1 Subject to confirmation, the rules are now “live” (from 1 April 2017)
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Complexity – c.160 pages of draft rules + c.290 pages of draft guidance
Potential impact on cash tax, quarterly instalments & accounts
Increased cost of debt funding & implications for financing strategy
Significant additional compliance burden
Overview of the rules
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Document Classification: KPMG Public
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Key steps
Step 1 Identify the worldwide group, financial statements and period of account
Step 2 Determine the group’s net tax-interest expense (+ if it is less than £2m)
Step 3 Calculate the group’s tax-EBITDA, ANGIE, QNGIE and Group EBITDA
Step 4 Calculate the disallowance (or reactivation) under the Fixed Rate Method
Step 5 Calculate the disallowance (or reactivation) under the Group Ratio Method
Step 6 Consider the impact of other elections
Step 7 Allocate the disallowance among UK group companies
Step 8 Comply with administrative requirements
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© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Overview of calculation rulesTotal Disallowed Amount = Aggregate Net Tax Interest Expense
+ +
+
> Interest Capacity
Interest Allowance + B/F Unused Interest Allowance (Min £2m)
Basic Interest Allowance
30% x Aggregate Tax EBITDA
Fixed Ratio Debt Cap (FRDC)
Lower of:
Fixed Ratio Method
ANGIE
Excess Debt Cap for Prior Period
Aggregate Net Tax Interest Income
Group Ratio Method Election
Lower of:
QNGIE / Group EBITDA xAggregate Tax EBITDA
Group Ratio Debt Cap (GRDC)
QNGIE
Excess Debt Cap for Prior Period
Interest Reactivation Cap = Interest Allowance > Aggregate Net Tax Interest Expense
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Overview of calculation rulesTotal Disallowed Amount = Aggregate Net Tax Interest Expense > Interest Capacity
Interest Allowance + B/F Unused Interest Allowance (Min £2m)
Basic Interest Allowance
Lower of:
Fixed Ratio Method
Lower of:
+ +
+
30% x Aggregate Tax EBITDA
Fixed Ratio Debt Cap (FRDC)
ANGIE
Excess Debt Cap for Prior Period
Aggregate Net Tax Interest Income
Group Ratio Method Election
QNGIE / Group EBITDA x Aggregate Tax EBITDA
Group Ratio Debt Cap (GRDC)
QNGIE
Excess Debt Cap for Prior Period
Interest Reactivation Cap Aggregate Net Tax Interest Expense= Interest Allowance >
Key Group Inputs
Key UK Inputs
— Aggregate Net Tax Interest Expense (or Income)
— Aggregate Tax EBITDA
Key Group Inputs
— ANGIE (Adjusted Net Group Interest Expense)
— QNGIE (Qualifying Net Group Interest Expense)
— Group EBITDA
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
FRM: Simple example
+
OverseasParent
£150m ANGIE
£50m AggregateNet Tax Interest Expense
UKSubsidiaries
£100m Aggregate
Tax-EBITDA
Basic Interest Allowance
No GR Election
30% x Aggregate Tax EBITDA
Fixed Ratio Debt Cap (FRDC)
Lower of:
ANGIE
Excess Debt Cap for Prior Period
30% of Aggregate tax-EBITDA £30mFixed Ratio Debt Cap * £150mBasic interest allowance £30mAggregate Tax Interest Expense £50mTotal Disallowed Amount * £20m
* Assuming (i) no excess debt cap brought forward from prior period and (ii) nounused interest allowance brought forward from prior period that would provide addition “interest capacity”
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
GRM: Simple example
+
OverseasParent
£150m QNGIE
£50m Aggregate Net Tax Interest Expense
UKSubsidiaries
£100m Aggregate ax-EBITDA
£400m Group EBITDA
Basic Interest Allowance
Group Ratio Method Election
Lower of:
QNGIE / Group EBITDA x Aggregate Tax EBITDA
Group Ratio Debt Cap (GRDC)
QNGIE
Excess Debt Cap for Prior Period
GR % (QNGIE / Group EBITDA) £37.5%GR% of Aggregate tax-EBITDA £37.5mGR Debt Cap (QNGIE) * £150mBasic interest allowance £37.5mAggregate Tax Interest Expense £50mTotal Disallowed Amount * £12.5m
* Assuming (i) no excess debt cap brought forward from prior period and (ii) no unused interest allowance brought forward from prior period that would provide addition “interest capacity”
T
Key issues & complexities
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14
Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Key issues and complexities
Worldwide group & financial statements
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Grouping – ExampleLimitedPartners
Corporate General Partner
Fund P’ship
HoldCo 1
BidCo 1
OpCo 1
HoldCo 2
BidCo 2
OpCo 2
LimitedPartners
Corporate General Partner
Fund P’ship
HoldCo 1
OpCo 1
HoldCo
HoldCo 2
BidCo 2
OpCo 2
BidCo 1
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Key issues and complexities
“Cleansing” data Derivatives
Worldwide group & financial statements
Capitalised interest
Elections
Group ratio rule & related party debt
Sector specific considerations
Carry forwards
Compliance implications & managing the impact
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Compliance - Overview
Reporting Company
Interest Restriction Return (IRR)
EnquiryPowers
HMRC
Info Powers
CT Returns
UK CT-Paying
Group Companies
Provide copy of IRR
Info Powers
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Other compliance points
01Abbreviated
(or nil) Returns
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Record keeping
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Enquiries
04Time limits & amendments
05Mismatches and
elections
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Penalties
07Information
powers
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SAO Regime
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Managing the impact Scenario analysis of
elections
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Allocation of disallowance/reactivation
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Interaction with loss rules & wider CT position
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Determine impact on QIPS & accounts
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Consider restructuring options
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Revisit transfer pricing
What next?
Three steps to get prepared
Assess the impact 1— Estimate potential impact over
a 5 year period— Engage key stakeholders— Determine key areas where
further work required
2 Develop your plan
— Conduct detailed analysis of key areas— Analyse impact of making different elections— Consider potential restructuring options— Perform transfer pricing review— Engage with HMRC, where relevant
Comply with the rules 3— Ensure adequate systems are
in place to gather data, perform calculations & prepare returns
— Make strategic decisions re elections & allocations
22© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Document Classification: KPMG Public
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Examples of how we are helping clients
Practical application of the KPMG three stage
approach
Making a targeted election to reduce the
CIR disallowance
Advising on the interaction with the new
loss rules
Making representations
to HMRC
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24
Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Q&ARob LantHead of Corporate Tax Partner, KPMG LLPTel: +44 (0)20 7311 [email protected]
Daniel HeadUK Head of Transfer PricingPartner, KPMG LLPTel: +44 (0)161 246 [email protected]
John MondsGlobal Transfer Pricing ServicesDirector, KPMG LLPTel: +44 (0)161 246 [email protected]
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Document Classification: KPMG Public
© 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Wrap up and next stepsDownload our guide today.
It explores how:— To fully understand your usage of loss and
interest tax relief and prepare to make the first corporation tax instalment payment on 14 July (for those with a December year end)
— You can make the necessary changes to your business to reduce inefficiencies effectively
— You can reduce the burden of compliance and reporting
— You can take practical steps to prepare your organisation and stakeholders for the complex changes.
Also visit our BEPS Action 4/CIR diary at:https://home.kpmg.com/uk/en/home/insights/2016/04/beps-action-4-tax-updates.html
For the history of and latest developments in relation to CIR
Document Classification: KPMG Public
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