Taxation (International and Other Provisions) Act 2010 section 402

Effect of group ratio (blended) election on group ratio debt cap

Section 402 explains how making a group ratio (blended) election changes the way the debt cap is calculated, by replacing the single qualifying net group-interest expense figure with a blended figure that reflects the different types of investors in the group.

• When a group ratio (blended) election is in effect, the debt cap in section 400 uses a "blended net group-interest expense" instead of the usual qualifying net group-interest expense
• The blended figure is built up investor by investor: each investor's share in the group is multiplied by the relevant measure of net group-interest expense that applies to that investor's category, and all the results are added together
• For investors that belong to their own separate worldwide group, only the portion of that group's qualifying net group-interest expense that relates to funding provided (directly or indirectly) to the main worldwide group is taken into account, apportioned on a just and reasonable basis where accounting periods do not align or where funding is used partly for other purposes
• "Financial arrangements" for these purposes does not include the holding of shares, so pure equity investments are excluded from the calculation

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