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HMRC internal manual

Corporate Finance Manual

Interest restriction: public infrastructure: qualifying public receipts

TIOPA10/S439(3)-(5)

For the purposes of the meaning of a qualifying old loan relationship, a qualifying infrastructure receipt of a company is:

  • any revenue receipt arising from a qualifying infrastructure activity carried on by the company; and
  • such proportion of the revenue receipts arising from qualifying infrastructure activities carried on by another company, so far as they are attributable to the company’s interest in that other company (directly or indirectly) arising as a result of shares or loans.
Example 1

Link to the structure diagram for this example

Company A owns all of the share capital in Company B, and Company B owns all of the share capital of Company C and Company D.

Both Company C and Company D hold PFI contracts with local authorities which generate qualifying infrastructure receipts which are considered highly predictable from 12 May 2016 for approximately 30 years.

Company B’s only assets are the shares in Company C and Company D, and a loan to Company D. Its income, therefore, is limited to dividends and interest receivable from its subsidiaries. It is a QIC.

For the purpose of determining whether Company B has a qualifying infrastructure receipt, both the returns from the holding in Company D’s issued loan notes, and Company C and Company D’s shares are considered, so far as the underlying activity of the companies constitute a qualifying infrastructure activity generating qualifying infrastructure receipts. In this example, all the activity of Company C and Company D are considered generating qualifying infrastructure receipts, and as such all Company C and Company D’s interest and dividends are considered qualifying infrastructure receipts.

Company A’s only assets are the shares in, and a loan to, Company B. As noted, neither Company A nor Company B are considered to undertake a qualifying infrastructure activity. In order to determine whether Company A’s dividend receipts and interest receivable are qualifying infrastructure receipts it must consider the activities of Company B’s investments, Company C and Company D. In this example it would conclude, as Company B does, that its dividend receipts and interest receivable are qualifying infrastructure receipts by reference to Company C and Company D’s qualifying infrastructure activity.

Example 2

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Company A, owns 95% of the share capital in Company C and itself has a wholly owned subsidiary Company B (these are its only assets). Company X, an unrelated party, owns the other 5% of Company C’s shares and has provided it with a loan.

Company C holds a PFI contract with a local authority which generates qualifying infrastructure receipts which are considered highly predictable from 12 May 2016 for approximately 30 years.

As in the previous example, Company A will have qualifying infrastructure receipts by virtue of dividends from Company C. Its dividend receipts from Company B will not be qualifying infrastructure receipts. In order to determine the relative value of Company A’s qualifying infrastructure receipts, it will have to consider the present value of its forecast cash flows (dividends) from both Company B and Company C, as at 12 May 2016 for the qualifying period.