A report by the Centre for Policy Studies argues that the proposals to introduce restrictions on the tax deductibility of corporate interest expense could cost the property sector £700m per year.
Budget 2016 announced proposals for a limit based on 30% of EBITDA and a ‘group-ratio’ rule based on the net interest to EBITDA ratio for the worldwide group, to apply from April 2017. Consultation on these proposals ended in August.
The report, endorsed by 17 leading companies in the sector, argues that real estate and infrastructure projects rely on debt finance far more than most other industries, with interest costs of as much as 60% of earnings not uncommon. The group ratio calculation could be affected by a number of factors outside the company’s control, which will add considerable uncertainty for businesses.
The report recommends:
the government should not introduce the new proposals unless it is clear that they will not harm investment into capital intensive industries;
the tax treatment of existing financing arrangements should be excluded from the new rules and existing third party debt grandfathered indefinitely; and
postponing implementation beyond April 2017, until it is clear how other countries will respond to the OECD’s recommendations and giving businesses sufficient time to adapt.
The report, Complexity, uncertainty and cost: the impact of new rules to restrict tax relief on interest costs on real estate investment, is published by the Centre for Policy Studies here.
A report by the Centre for Policy Studies argues that the proposals to introduce restrictions on the tax deductibility of corporate interest expense could cost the property sector £700m per year.
Budget 2016 announced proposals for a limit based on 30% of EBITDA and a ‘group-ratio’ rule based on the net interest to EBITDA ratio for the worldwide group, to apply from April 2017. Consultation on these proposals ended in August.
The report, endorsed by 17 leading companies in the sector, argues that real estate and infrastructure projects rely on debt finance far more than most other industries, with interest costs of as much as 60% of earnings not uncommon. The group ratio calculation could be affected by a number of factors outside the company’s control, which will add considerable uncertainty for businesses.
The report recommends:
the government should not introduce the new proposals unless it is clear that they will not harm investment into capital intensive industries;
the tax treatment of existing financing arrangements should be excluded from the new rules and existing third party debt grandfathered indefinitely; and
postponing implementation beyond April 2017, until it is clear how other countries will respond to the OECD’s recommendations and giving businesses sufficient time to adapt.
The report, Complexity, uncertainty and cost: the impact of new rules to restrict tax relief on interest costs on real estate investment, is published by the Centre for Policy Studies here.
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