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HMRC internal manual

Corporate Finance Manual

Debt cap: particular types of company: exemption for group treasury companies

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

Group treasury companies - election for exemption

Introduction

TIOPA10/S316 contains provisions that allow a member of the worldwide group (a “group treasury company”) to elect that certain amounts that would otherwise be financing expense amounts and financing income amounts should be left out of account in computing the worldwide group’s tested expense amounts and tested expense amounts. Since this provision first came into effect there have two legislative changes that have significantly changed the manner in which this provision applies.

Effect of a treasury company election

The exemption for group treasury companies in TIOPA10/PT7/S316 applies only where the company makes an election for amounts not to be treated as finance expense or finance income of the group treasury company. For periods of account beginning on or after 11 December 2012, the election may apply only to a part of the activities of the company.

 

An election applies to a period of account of the worldwide group: a group treasury company that wants the exclusion to apply for successive periods of account must make an election for each period.

Where an election has been made, amounts that would otherwise be financing expense amounts of the period within TIOPA10/PT7/S313 are not financing expense amounts. Similarly, receipts that would otherwise fall within TIOPA10/PT7/S314 are not financing income amounts. This means that the company cannot have a net financing deduction, and no disallowance can be allocated to it under chapter 3. Nor can it have net financing income, and interest or similar income that it receives cannot be disregarded under chapter 4, or under the provisions relating to certain financing income from European Economic Area companies in chapter 5 (see CFM92800 onwards).

A group treasury company must make an election within three years after the end of the period of account concerned.

CFM92530 - CFM92540 explains what is meant by a ‘group treasury company’.

Periods of account ending before 17 July 2012

The original provisions apply to periods of account of a worldwide group from the time TIOPA10/PT7 first came into effect, that is, periods that begin on or after 1 January 2010, and which end before 17 July 2012.  Under the original provisions a company had to be a group treasury company as defined to make an election.

Further the election was not valid unless all group treasury companies in the worldwide also so elected. The effect of the election was that all of the financing expense amounts and financing income amounts of each electing company were left out of account.

Periods of account ending on or after 17 July 2012 and beginning before 11 December 2012

The provisions were amended by FA12 with effect for periods of account ending on or after 17 July 2012. The effect of this amendment was that there is no longer an effective requirement that all group treasury companies made the election; an election made by one company could be valid even where other eligible companies did not elect.

Periods of account beginning on or after 11 December 2012

Further amendments were made by FA13 with effect for periods of account beginning on or after 11 December 2012. The main effect of these amendments is that a company is only a group treasury company if it makes an election and even if it does, it is possible that only a part of its financing expense amounts and financing income amounts will be left out of account.  There is no requirement that all eligible companies make an election.

There were two changes to the conditions made for these periods.

First, to be a group treasury company, a company must have made an election for the relevant period. The election must be made within three years from the end of the period of account. This condition for a company being a group treasury company is in addition to the original three conditions described at CFM92530.

Second, the effect of an election can be different. If, having made an election, all or substantially all of a company’s activities are treasury activities and all or substantially all of its assets and liabilities relate to such activities, the company’s financing expenses and financing income are included in the election. But, if that is not the case, the only financing expenses and financing income included in the election are those that relate to its treasury activities. See CFM92535.