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HMRC internal manual

Corporate Finance Manual

Debt cap: failure to make statements of allocation: default allocation of disallowance of financing expense amounts: DRICs involved

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Calculating the default reduction: Dual Resident Investing Companies

TIOPA10/S275A defines a ‘dual resident investing company’ for debt cap purposes,

A company is a DRIC if, for part or all of the period of account of the worldwide group to which the statement applies, the company is prevented by CTA10/S109 (2) from surrendering losses as group relief.

CTA10/S109 (2) was derived from ICTA88/S404. See CTM34505.

TIOPA10/S284A addresses the situation where a default allocation has to be made and the UK group includes one or more DRICs. If the company whose tax affairs are being looked at, or any other company to which TIOPA10/PT7/CH3 applies, is a DRIC, the default allocation is made using the formula in TIOPA10/S284A. This formula is set out at CFM91830.

  1. The effect of the formulae in S284A is that all relevant group companies which are not DRICs are first looked at as a subset. The tested expense amount relevant to this subset (i.e. disregarding net financing deductions of DRICs) is then calculated. The total disallowed amount is allocated among these non-DRIC companies pro rata to their contribution to this reduced tested expense amount.
  2. In a few cases it may not be possible to allocate the total disallowed amount in this way, because the figure exceeds the tested expense amount relevant to the non-DRIC companies. Where this happens, this ‘excess amount’ is allocated among the DRICs in the UK group, again on a pro rata basis.