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HMRC internal manual

Corporate Finance Manual

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Debt Cap: the available amount: exclusions from the available amount - oil

Amounts to be excluded from the available amount - oil, shipping and REITs

TIOPA10/PT7/S333 to S335 exclude certain amounts disclosed in the financial statements of the worldwide group where group members have income that results in a particular treatment for tax purposes in the UK.

The three exclusions are:

  • group members with income from oil extraction subject to a particular tax treatment in the UK
  • group members with income from shipping subject to a particular tax treatment in the UK, and
  • group members with income from property rental subject to a particular tax treatment in the UK.

In all three paragraphs the term ‘external finance amount’ is used. This is used because during the process of consolidation any intra-group balances must be eliminated. This means that the disclosed amounts are the external finance amounts of the worldwide group.

The expression ‘relevant accounting period’ is used in each of the three paragraphs. It means, in relation to a member of the worldwide group, an accounting period of the member that falls wholly or partly within the period of account of the worldwide group.

Income from oil extraction

The UK taxes profits arising from oil extraction activities as a separate trade, and subject to a specific tax treatment contained in CTA10/PT8.

TIOPA10/S333 excludes from the calculation of the available amount, those amounts disclosed in the financial statements of the worldwide group where the following two conditions are met:

  • Condition A - a member of the worldwide group is treated in a relevant accounting period as carrying on a ring fence trade within the meaning given by ICTA88/S502 (trades which fall within the definition of ‘oil related activities’ and which constitute a separate trade).
  • Condition B - the external finance amount falls to be brought into account for the purposes of corporation tax in calculating the profits of that ring fence trade for that accounting period.

Where these external finance amounts arise, so that they are finance costs of the ring fence trade, they are excluded from the calculation of the available amount.