Taxes Consolidation Act 1997 section 835AAC

Interest limitation

Section 835AAC is the main operational provision of the interest limitation rule (ILR), setting out how the restriction applies to reduce interest deductions and how the de minimis threshold is tested.

• The ILR applies where a relevant entity is not a standalone entity, has a disallowable amount greater than zero, and its exceeding borrowing costs exceed the €3 million de minimis amount (pro-rated for shorter periods).
• Where the ILR applies, the tax payable (or loss) for the accounting period is recalculated by reducing the interest equivalent that would otherwise have been deductible by the disallowable amount, until the disallowable amount is exhausted.
• Because the disallowable amount is computed at a standardised 12.5% tax value, a gross-down fraction (T rate divided by the applicable higher rate) must be applied when restricting interest deducted against 25%-taxed profits or chargeable gains taxed at the CGT rate.
• Where a restriction reduces interest deductible in connection with a specified intangible asset, the reduced interest figure feeds into the 80% cap on aggregate intangible asset allowances and related interest under section 291A(6).