Taxation (International and Other Provisions) Act 2010 section 377

Disallowance of deductions: identification of the tax-interest amounts to be left out of account

Section 377 establishes the rules for determining which specific tax-interest expense amounts must be disallowed when a company is required to restrict some (but not all) of its interest deductions under the corporate interest restriction rules.

• Where only part of a company's tax-interest expense amounts must be disallowed, there is a default priority order determining which amounts are restricted first
• The default order disallows non-trading loan relationship debits first, then non-trading derivative contract debits, then trading loan relationship debits, then trading derivative contract debits, and finally amounts relating to finance leases, debt factoring and service concession arrangements
• A company may elect to disapply the default ordering and instead choose which specific tax-interest expense amounts are to be disallowed
• Any such election must specify the particular tax-interest expense amounts that the company has chosen to leave out of account