Chapter CFM92040
| Published date | 16 April 2016 |
| Record Number | CFM92040 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.
Example of short-term debt electionA worldwide group has three subsidiaries in the UK, companies A, B and C.
Company A is a 100% subsidiary. During the year ended 31 December 2014 it reports the following amounts in its financial statements
- £20 million interest payable in respect of a 10 year bond
- £1 million interest payable in respect of a bank overdraft
- £3 million interest payable to company B in respect of a short-term finance arrangement
- £1 million interest payable to an overseas group company in respect of a short-term finance arrangement
Company B is a 60% joint venture company. During the year ended 31 December 2014 it reports the following amounts in its financial statements
- £1 million interest payable in respect of a bank overdraft
- £1 million interest payable to an overseas group company in respect of a short-term finance arrangement
- £3 million interest receivable from company A
Company C is a 100% subsidiary. During the year ended 31 December 2014 it reports the following amounts in its financial statements
- £3 million interest payable to an overseas group company in respect of a short-term finance arrangement
- £2 million interest receivable from a bank deposit
The calculations of the companies’ net financing deduction and net financing income, with and without the effect of an election under TIOPA10/S319 and the corresponding effect of TIOPA10/S320 are shown below.
Company B is not a relevant group company, since it is not a 75% subsidiary of the ultimate parent company, but it is a UK group company and a member of the worldwide group. It must elect jointly with company A if the £3 million interest payable on the short-term finance arrangement is not to be treated as a financing expense amount of company A, or a financing income amount of company B. And it is entitled to elect, jointly with the overseas company concerned, that the £1 million interest on the relevant short-term finance arrangement is disregarded.
Without the exclusion for short-term finance arrangements| Company A | Company B | Company C | |
| External finance expense | £21 |
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