Taxes Consolidation Act 1997 section 835AAI

Equity ratio

Section 835AAI sets out the equity ratio rule, which allows a company to elect that the interest limitation rule does not apply where the company's ratio of equity over total assets is broadly comparable to that of its worldwide group.

• The equity ratio is E/A, where E is equity (share capital, share premium and reserves) and A is total assets, expressed as a percentage and based on GAAP financial statements.
• The equity ratio applies where the company's ratio is greater than, equal to, or not more than two percentage points below, the worldwide group's or single company worldwide group's ratio.
• Arrangements entered into in the six months before the end of an accounting period to inflate the equity figure are disregarded unless carried out for bona fide commercial reasons and not to secure the application of the equity ratio.
• Where the equity ratio conditions are met, the company may elect that the interest limitation rule under section 835AAC does not apply for the accounting period.