»Ê¹ÚÌåÓýapp

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Example - default allocation where a group includes DRICs

A group has 7 relevant group companies which, in a particular period of account of the worldwide group, have net financing deductions. Two of these companies are dual resident investing companies (DRICs). »Ê¹ÚÌåÓýapp net financing deductions are as follows:

Companies that are not DRICs	NFD (£ million)	Companies that are DRICs	NFD (£ million)
Alpha Ltd	82	Psi Ltd	100
Beta Ltd	3	Omega Ltd	12
Gamma Ltd	21	-	-
Delta Ltd	19	-	-
Epsilon Ltd	35	-	-
Total non-DRICs	160	-	-
-	-	Total DRICs	112

»Ê¹ÚÌåÓýapp tested expense amount (TEA), which is the aggregate of the net financing deductions across all relevant group companies, is therefore £272 million. »Ê¹ÚÌåÓýapp amount referred to as X in S284A, the aggregate net financing deduction for the DRICs, is £112 million.

»Ê¹ÚÌåÓýapp group does not submit a statement of allocated disallowances, and a “default allocationâ€� is made.

»Ê¹ÚÌåÓýapp following table shows how a disallowance would be allocated under S284 and S284A in two scenarios:

• if the total disallowed amount (TDA) is £60 million, and
• if the total disallowed amount is £180 million.

For a company that is not a DRIC, S284A (2) provides that the disallowance is calculated by applying the formula NFD/(TEA - X) x TDA.

Thus in the first scenario, the disallowance for each non-DRIC company will be:

NFD x 60/ (272 - 112), or NFD x 60/160

For a DRIC, S284A (3) provides the disallowance is NFD/X x (TDA - (TEA - X))

Inserting the figures for the first scenario (where the total disallowed amount is £60m) into this formula gives:

NFD/112 x (60 - (272 - 112))

Since this will always be negative, however, the disallowance for each DRIC is taken as nil.

In the second scenario, the disallowance for each non-DRIC would, under the S284A (2) formula, be:

NFD x 180/ (272 - 112)

This amount would, however, always be more than the company’s net financing deduction, so S284A (2) provides that the disallowance is limited to the company’s NFD.

»Ê¹ÚÌåÓýapp amount to be allocated to each DRIC under S284A (3) will be:

NFD x (180 - (272 - 112)/112, or NFD x 20/112

»Ê¹ÚÌåÓýapp overall result, in each scenario, will therefore be allocation of the full amount of the disallowance:

Company	NFD (£ million)	Disallowed amount if TDA = £60 million (£ million)	Disallowed amount if TDA = £180 million (£ million)
Alpha	82	(82 x 60/160) 30.75	82
Beta	3	1.125	3
Gamma	21	7.875	21
Delta	19	7.125	19
Epsilon	35	13.125	35
Psi	100	Nil	(100 x 20/112) = 17.857
Omega	12	Nil	2.143
Totals	272	60	180