扒哥吃瓜

If there is third party and related party interest in the example shown in CFM96860 the effect of a blended group ratio can be demonstrated.

For visual illustration view 

The diagram shows the effect of applying a blended group ratio to a joint venture (JV) under section 399. The JV has four investors. Three are related parties with group ratios of A 70%, B 32% and C 60%, holding interests of 40%, 25% and 25%. One investor D is not a related party, with a group ratio of 80% and a 10% interest. These interests give the JV a blended group ratio of 35%. The JV has operating profit of 100, with interest expense of 35 paid to a third party and 30 paid to a related party.

Election not made

Accounts	JV
Operating profit	100
Third party interest expense (QNGIE)	- 35
Related party interest	- 30
Profit before tax	35

Calculation of adjusted net group-interest expense	JV
Third party interest expense	35
Related party interest expense	30
Adjusted net group-interest expense	65

Calculation of group ratio	JV
Qualifying net group-interest expense	35
PBT for the JV	35
Add back adjusted net group-interest expense	65
Group-EBITDA	100
Group Ratio	35%

Interest allowance	JV
Tax-EBITDA	100
X plc group ratio	35%
Interest allowance	35
Net tax-interest expense	65
Less interest allowance	- 35
Restriction	30

When the election is not made the group ratio of the JV is calculated under TIOPA10/s399 which works out at 35%. As the related party interest does not contribute to the group ratio there is a restriction of 30 in the JV

Blended group ratio election made

Accounts	JV
Operating profit	100
3rd party interest expense (QNGIE)	- 35
Related party interest	- 30
Profit before tax	35

Calculation of adjusted net group-interest expense	JV
Third party interest expense	35
Related party interest	30
Adjusted net group interest expense	65

•  Blended Group Ratio from example in CFM96860 - 55%

Interest allowance	JV
Tax-EBITDA	100
Blended group ratio	55%
Interest allowance	55
Net tax-interest expense	65
Less interest allowance	- 55
Restriction	10

If this situation is compared to the circumstance where no election is made the restriction is reduced to 10. Therefore, in this circumstance it is advantageous to make a group ratio (blended) election.