Corporate Interest Restriction

Transcription

1 Corporate Interest Restriction Based on draft finance bill 2017 issued 20 March June 2017

2 With you today Rob Lant Head of Corporate Tax Partner, KPMG LLP Tel: +44 (0) Daniel Head UK Head of Transfer Pricing Partner, KPMG LLP Tel: +44 (0) John Monds Global Transfer Pricing Services Director, KPMG LLP Tel: +44 (0) KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent 2017 member KPMG firms LLP, affiliated a UK limited with KPMG liability International partnership and Cooperative a member firm of the 2 ( KPMG International ), a Swiss entity. All rights reserved. KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

3 Agenda Where are we now? Overview of the rules Key issues & complexities Compliance implications & managing the impact What next? 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. 3

4 Where are we now?

5 Where are we now? We are here! 2016 Consultation and draft legislation 20 March 2017 Finance Bill March 2017 Draft guidance published by HMRC 1 April 2017 Commencement? 25 April 2017 Omission from FB June 2017 General election Summer/Autumn 2017 Measures likely to be reintroduced in a post election Finance Bill (with 1 April 2017 start date?) 2017 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International 5 Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

6 Why should you care? 1 Subject to confirmation, the rules are now live (from 1 April 2017) Complexity c.160 pages of draft rules + c.290 pages of draft guidance Potential impact on cash tax, quarterly instalments & accounts Increased cost of debt funding & implications for financing strategy Significant additional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 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. 6

7 Overview of the rules

8 Key steps Step 1 Step 2 Step 3 Step 4 Step 5 Identify the worldwide group, financial statements and period of account Determine the group s net tax-interest expense (+ if it is less than 2m) Calculate the group s tax-ebitda, ANGIE, QNGIE and Group EBITDA Calculate the disallowance (or reactivation) under the Fixed Rate Method 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 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. 8

9 Overview of calculation rules Total Disallowed Amount = Aggregate Net Tax Interest Expense > Interest Capacity Interest Allowance + B/F Unused Interest Allowance (Min 2m) Basic Interest Allowance + Aggregate Net Tax Interest Income Fixed Ratio Method Lower of: 30% x Aggregate Tax EBITDA Fixed Ratio Debt Cap (FRDC) Group Ratio Method Election Lower of: QNGIE / Group EBITDA x Aggregate Tax EBITDA Group Ratio Debt Cap (GRDC) ANGIE Excess Debt Cap for Prior Period QNGIE + + Excess Debt Cap for Prior Period Interest Reactivation Cap = Interest Allowance > Aggregate Net Tax Interest Expense 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. 9

10 Overview of calculation rules Total Disallowed Amount = Aggregate Net Tax Interest Expense > Interest Capacity Key Group Inputs Interest Allowance + B/F Unused Interest Allowance (Min 2m) Basic Interest Allowance + Aggregate Net Tax Interest Income Key UK Inputs Aggregate Net Tax Interest Expense (or Income) Aggregate Tax EBITDA Fixed Ratio Method Group Ratio Method Election Lower of: 30% x Aggregate Tax EBITDA Fixed Ratio Debt Cap (FRDC) ANGIE Excess Debt Cap for Prior Period Lower of: QNGIE / Group EBITDA x Aggregate Tax EBITDA Group Ratio Debt Cap (GRDC) QNGIE + + Excess Debt Cap for Prior Period Key Group Inputs ANGIE (Adjusted Net Group Interest Expense) QNGIE (Qualifying Net Group Interest Expense) Group EBITDA Interest Reactivation Cap = Interest Allowance > Aggregate Net Tax Interest Expense 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. 10

11 FRM: Simple example Overseas Parent 50m Aggregate Net Tax Interest Expense 150m ANGIE Basic Interest Allowance No GR Election Lower of: 30% x Aggregate Tax EBITDA Fixed Ratio Debt Cap (FRDC) UK Subsidiaries 100m Aggregate Tax-EBITDA ANGIE + Excess Debt Cap for Prior Period 30% of Aggregate tax-ebitda 30m Fixed Ratio Debt Cap * 150m Basic interest allowance 30m Aggregate Tax Interest Expense 50m Total Disallowed Amount * 20m * 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 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. 11

12 GRM: Simple example Overseas Parent 50m Aggregate Net Tax Interest Expense 150m QNGIE Basic Interest Allowance Group Ratio Method Election Lower of: QNGIE / Group EBITDA x Aggregate Tax EBITDA Group Ratio Debt Cap (GRDC) UK Subsidiaries QNGIE + Excess Debt Cap for Prior Period 100m Aggregate Tax-EBITDA 400m Group EBITDA GR % (QNGIE / Group EBITDA) 37.5% GR% of Aggregate tax-ebitda 37.5m GR Debt Cap (QNGIE) * 150m Basic interest allowance 37.5m Aggregate Tax Interest Expense 50m Total 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 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. 12

13 Key issues & complexities

14 Key issues and complexities Worldwide group & financial statements 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 14 ( KPMG independent International ), member firms a Swiss affiliated entity. with All KPMG rights reserved. International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. 14

15 Grouping Example Limited Partners Corporate General Partner Limited Partners Corporate General Partner Fund P ship Fund P ship HoldCo HoldCo 1 HoldCo 2 HoldCo 1 HoldCo 2 BidCo 1 BidCo 2 BidCo 1 BidCo 2 OpCo 1 OpCo 2 OpCo 1 OpCo 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. 15

16 Key issues and complexities Cleansing data Derivatives Worldwide group & financial statements Group ratio rule & related party debt Elections Sector specific considerations Capitalised interest Carry forwards 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. 16

17 Compliance implications & managing the impact

18 Compliance - Overview Interest Restriction Return (IRR) Reporting Company Enquiry Powers Info Powers Provide copy of IRR HMRC UK CT-Paying Group Companies Info Powers CT Returns 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. 18

19 Other compliance points Abbreviated (or nil) Returns Record keeping Enquiries Time limits & amendments Mismatches and elections Penalties Information powers SAO Regime 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. 19

20 Managing the impact 6 Determine impact on QIPS & accounts 1 Scenario analysis of elections 5 Consider restructuring options 2 Allocation of disallowance/reactivation 4 Revisit transfer pricing 3 Interaction with loss rules & wider CT position 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. 20

21 What next?

22 Three steps to get prepared Estimate potential impact over a 5 year period Engage key stakeholders Determine key areas where further work required Assess the impact 1 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 Ensure adequate systems are in place to gather data, perform calculations & prepare returns Make strategic decisions re elections & allocations Comply with the rules 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. 22

23 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 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. 23

24 Q&A Rob Lant Head of Corporate Tax Partner, KPMG LLP Tel: +44 (0) Daniel Head UK Head of Transfer Pricing Partner, KPMG LLP Tel: +44 (0) John Monds Global Transfer Pricing Services Director, KPMG LLP Tel: +44 (0) KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent 2017 member KPMG firms LLP, affiliated a UK limited with KPMG liability International partnership and Cooperative a member firm of the 24 ( KPMG International ), a Swiss entity. All rights reserved. KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.

25 Wrap up and next steps Download 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: beps-action-4-tax-updates.html For the history of and latest developments in relation to CIR 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. 25

26 kpmg.com/uk The information contained herein 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 on such information without appropriate professional advice after a thorough examination of the particular situation 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. The KPMG name and logo are registered trademarks or trademarks of KPMG International. CREATE: CRT083305B