Taxation (International and Other Provisions) Act 2010 section 459

Charities

Section 459 provides an exemption from the corporate interest restriction rules for interest payments made by a wholly-owned subsidiary company to its parent charity on loans between them.

• Where a company borrows from a charity that wholly owns it, the interest expense on that loan can be excluded from the corporate interest restriction calculations.
• The exemption applies only if, throughout the relevant accounting period, a hypothetical donation from the company to the charity would qualify as a charitable donation for tax purposes.
• The effect is that such interest costs are treated as if they were never a "tax-interest expense amount", meaning they are not subject to any potential disallowance under the corporate interest restriction rules.
• The charity must be the lender (creditor) on the loan relationship, and the borrowing company must be a wholly-owned subsidiary of that charity for the entire period.