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There appears to have been an unintended change in the Income
Tax Act 2007 in relation to the deductibility of interest
expenditure for a company that belongs to a consolidated group.
Company A and Company X are both qualifying companies and
members of a consolidated group.
Company A borrows money from Company Z (not a member of the
consolidated group) and uses the funds to acquire share capital
in Company X.
Company A does not meet the requirements for a deduction of
interest under section DB 7 (Interest: Most companies need no
nexus with income) but would get a deduction under section DB 8
(Interest: money borrowed to acquire shares in group company) in
the absence of section FM 12.
The consolidated group (treated as one company) is not entitled
to an interest deduction under section FM 12(2) of the 2007 Act
but would be entitled to a deduction under HB 2(1)(d) of the
2004 Act. |