CFM96810 - Interest restriction: joint ventures: interest allowance (non-consolidated investment) election: example 4: transparent JV
This has the same amount as the example in CFM96750 but in this case the JV is 'transparent' for tax purposes - for example it is a partnership.聽聽 X plc makes an interest allowance (non-consolidated investment) election.
| Accounts | X plc聽 | JV | X plc Group |
|---|---|---|---|
| Operating profit | 100 | 150 | 100 |
| 3rd party interest expense (QNGIE) | - 50 | - 60 | - 50 |
| Share of profits of JV | - | - | 45 |
| Profit before tax | 50 | 90 | 95 |
- X plc share of profits from JV - 50%
| Calculation of聽 QNGIE | X plc |
|---|---|
| QNGIE in X plc | 50 |
| Share of JV QNGIE | 30 |
| Total QNGIE (A) | 80 |
| Calculation of group-EBITDA | X plc |
|---|---|
| Group-EBITDA of X plc group | 145 |
| Reduction in group-EBITDA from JV profits | - 45 |
| Share of JV's group-EBITDA | 75 |
| Group-EBITDA聽 - (B) | 175 |
| Group ratio ( A/B) | 46% |
| Interest allowance | X plc |
|---|---|
| Tax-EBITDA of X plc (including its share of the JV's taxable profits before interest) | 175 |
| X plc group ratio | 46% |
| Interest allowance | 80 |
| Net tax-interest expense of X plc (including its share of the 60 interest expense of the transparent JV) | 80 |
| Less interest allowance | - 80 |
| Restriction | - |
The group ratio of X plc of 46% is the same as in example CFM96780. As the JV is transparent for tax purposes, X plc includes its share of the profits and net tax interest expense of JV in its tax figures. Therefore tax-EBITDA of X plc is 175 (100 + 50% of 150).聽 The interest allowance is 80 which is equal to the net tax-interest expense in the X plc group so there is now no restriction.