Taxes Consolidation Act 1997 sections 739LA

Profit: financing cost ratio

Sections 739LA and 739LAA restrict the financing cost deductions that may be taken by Irish real estate funds (IREFs) by imposing a debt-to-cost limit and an interest coverage ratio, with any excess treated as deemed income chargeable to income tax.

• Where an IREF's total debt exceeds 50% of the cost of its assets, a proportion of the IREF's financing costs is treated as deemed income, calculated by reference to the ratio of excess debt to total debt.
• Where the IREF's property financing costs ratio falls below 1.25:1 for an accounting period, the amount by which financing costs would need to be reduced to restore the ratio to 1.25:1 is also treated as deemed income.
• The deemed income under both metrics is aggregated and charged to income tax under Case IV of Schedule D, and no loss, deficit, expense or allowance may be set off against it; the total charge is capped at the IREF's actual property financing costs for the period.
• Section 739LA applies to accounting periods commencing on or after 9 October 2019, and section 739LAA applies from 1 January 2020, though Revenue accepts that IREFs may elect to apply section 739LAA from 9 October 2019.