This is piece of Out-Law’s series of news and insights from Pinsent Masons experts on the impact of the UK’s EU referendum. Watch our video on the issues facing businesses and sign up to receive our ‘What next?’ checklist.

The proposed restrictions, which are currently expected to apply from April 2017, would be improper for British business. It is to be hoped that HM Revenue & Customs (HMRC) will procrastinate their introduction given the uncertainty which has arisen since the UK voted to depart the EU.

The UK government will come beneath pressure from industry experts to procrastinate introducing the restriction. The plans are expected to possess significant adverse consequences for infrastructure and energy projects that are heavily geared and whose viability is frequently reliant on tax relief for interest. 

The restriction will operate by way of a fixed ratio rule, which will limit corporate tax relief for interest, other financing costs which are economically equivalent to interest and expenses incurred in connection with the raising of finance to 30% of “tax-EBITDA”.  Tax-EBITDA will be profits chargeable to corporation tax, excluding interest, tax depreciation such as capital allowances, tax amortisation, relief for losses brought forward or carried behind and group relief claimed or surrendered. The restriction is being introduced following recommendations made by the Organisation for Economic Cooperation and Development in October 2015 as piece of its BEPS (base erosion and profit shifting) project to combat international tax avoidance by multinationals.

The details of the recent rules were published in a joint HM Treasury and HMRC consultation document in May. It is expected that requests to procrastinate implementation will makeup a big piece of stakeholders’ responses, which are being accepted until 4 August.

There possess already been calls to procrastinate the commencement of the recent rules. When the proposals were first consulted on in October endure year, businesses urged the government to reconsider the timings. In the May consultation document, though, the government said that early introduction of the restriction would demonstrate the “UK’s leadership in implementing the G20 and OECD recommendations”. 

However, the political and economic landscape has changed since October. Given the depart vote for Brexit, perhaps there will be less political pressure on HMRC and HM Treasury from ministers to be seen to be leading the way in international tax policy – especially since the changes proposed will be so detrimental to offshore investment in British business at the very moment Britain will crave every the advantages it can offer.

There is also concern that the recent rules will render the so called public benefit project exclusion (PBPE) almost useless. The rules currently grant for a narrow exclusion for certain infrastructure projects that are in the “public benefit”.

unit of the conditions of the PBPE is that the project would possess to “provide services which it is government policy to provide for the benefit of the public”. Following Brexit and the expected downturn in economic activity, it is possible that reduced government funding will be available to finance infrastructure projects and therefore the government’s infrastructure policy set out in the National Infrastructure Delivery Plan may alter. This in revolve may lead to even fewer infrastructure projects satisfying the PBPE.

The PBPE is so restrictive few existing projects will qualify. With a fall in government spending on infra projects likely, third party investment will be vital – but third parties will depart elsewhere in Europe if the UK does not build it easy to obtain a good internal rate of return, by widening the PBPE to get such investments outside these rules.

Eloise Walker is a tax expert at Pinsent Masons, the law firm behind