Section 402 | Effect of group ratio (blended) election on group ratio debt cap

(1)Where a group ratio (blended) election (see paragraph 14 of Schedule 7A) has effect in relation to a period of account of a worldwide group (“the relevant period of account”), this Chapter applies subject to this section.

(2)In section 400 (the debt cap), subsection (2)(a) is treated as if—

(a)it did not refer to the qualifying net group-interest expense of the group for the period, and

(b)instead it referred to the blended net group-interest expense of the group for the period, as determined in accordance with this section.

(3)The blended net group-interest expense of the group for the relevant period of account is determined by taking the following steps—

Step 1 For each investor in the group whose applicable percentage for the purposes of section 401 is the percentage mentioned in subsection (4)(a) of that section, multiply the adjusted net group-interest expense of the group for the period by the investor's share in the group.

Step 2 For each investor in the group whose applicable percentage for the purposes of section 401 is the percentage mentioned in subsection (4)(b) of that section, multiply the qualifying net group-interest expense of the group for the period by the investor's share in the group.

Step 3 For each investor in the group whose applicable percentage for the purposes of section 401 is the percentage mentioned in subsection (4)(c) of that section, find the applicable net group-interest expense of the investor's worldwide group for the period (see subsections (4) to (8) of this section).

Step 4 Add together the amounts found under Steps 1, 2 and 3.

(4)For the purposes of this section, the “applicable net group-interest expense” of the investor's worldwide group for a period of account is so much of the qualifying net group-interest expense of the investor's worldwide group for the period as relates to loans to, or other financial arrangements with, members of the investor's worldwide group that are used to fund (directly or indirectly) loans to, or other financial arrangements with, members of the worldwide group mentioned in subsection (1).

(5)Subsection (6) applies where periods of account of the investor's worldwide group (“the investor's periods of account”) are comprised in or overlap with (but are not coterminous with) the relevant period of account.

(6)The applicable net group-interest expense of the investor's worldwide group for the relevant period of account is the aggregate of so much of the applicable net group-interest expense of the investor's worldwide group for each of the investor's periods of account as is referable, on a just and reasonable basis, to the relevant period of account.

(7)Subsection (8) applies where—

(a)a loan is made to, or another financial arrangement is entered into with, a member of the investor's worldwide group, and

(b)the loan or other financial arrangement is—

(i)in part used to fund (directly or indirectly) loans to, or other financial arrangements with, members of the worldwide group mentioned in subsection (1), and

(ii)in part used for other purposes.

(8)In determining the applicable net group-interest expense of the investor's worldwide group for any period, the amount of the qualifying net group-interest expense of the investor's worldwide group for the period that is brought into account, in respect of the loan or other financial arrangement mentioned in subsection (7)(a), is confined to such amount as is referable, on a just and reasonable basis, to the use mentioned in subsection (7)(b)(i).

(9)In this section—

“financial arrangements” does not include the holding of shares;

“the investor's worldwide group” has the same meaning as in section 401.