Taxes Consolidation Act 1997 section 835AAB

Interpretation (Chapter 2)

Section 835AAB defines legacy debt, sets out how to calculate the net interest equivalent, and provides the formula for calculating EBITDA for the purposes of the interest limitation rule.

• Legacy debt is debt whose terms were agreed before 17 June 2016; undrawn principal only qualifies where the lender is legally obliged to advance it on pre-agreed milestones.
• The deductible interest equivalent on legacy debt is capped at the lower of the actual amount and the amount that would have arisen under the original 17 June 2016 terms.
• The net interest equivalent is deductible interest equivalent less legacy-debt deductible interest equivalent less taxable interest equivalent; a positive result is "exceeding borrowing costs" and a negative result is "interest spare capacity".
• EBITDA is calculated by adding back net interest, foreign tax, net capital allowances and charges (excluding amounts referable to deductible interest equivalent), and legacy-debt deductible interest to the relevant profit or loss, with a floor of zero.