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HMRC internal manual

Corporate Finance Manual

Interest restriction: overview: policy background

Most multi-national groups have external borrowings on which they pay interest and other financing costs. The borrowings will range from multi-billion syndicated loans used to finance a major acquisition or takeover, to overdraft facilities used to help manage the cash flows of individual companies within the group. As well as external borrowings, a multi-national group will very often have borrowing arrangements between group companies.

In line with Action 4 of the Organisation for Economic Cooperation and Development’s work on Base Erosion and Profit Shifting, the Corporate Interest Restriction legislation has been designed to combat attempts by multinational enterprises (MNEs) and other companies to obtain excessive tax relief for net interest and similar financing costs. The aim of these new rules is to ensure relief on financing costs is commensurate with the extent to which a business’s activities are subject to corporation tax.