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FE 7: Apportionment of interest by reporting bank
or “How reporting banks calculate extra income when their equity is below the threshold”
You could also call this:

“Rules for interest on public project debt for certain entities”

This section explains how interest on public project debt is treated for certain excess debt entities. You need to be a specific type of entity with public project debt and choose to apply this section.

When calculating your debt percentages, you’re treated as if you only have the public project debt, public project assets, and related non-debt liabilities. Your New Zealand group is considered to be just you.

If your debt percentage is higher than the allowed threshold, you might have to count some extra income. This is worked out using a special formula that looks at different types of debt and interest.

The formula considers two main types of debt: unrestricted debt (where the lender has security beyond just the project) and member debt (from project participants). It calculates how much of each type of debt is above the allowed threshold.

This section applies separately to each of your projects with public project debt. Any debt, interest, assets, or non-debt liabilities used in calculations for one project can’t be used again for other projects or sections.

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Next up: FE 8: Measurement dates

or “When and how to measure financial amounts for tax purposes”
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Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation

FE 7BInterest on public project debt for certain excess debt entities

  1. This section applies for a project to an excess debt entity that—

  2. is a person meeting the requirements of section FE 2(1)(b), (c), (e), or (f); and
    1. has an amount of public project debt for the project; and
      1. elects to apply the section to the first calculation for the excess debt entity under this subpart that includes the public project debt for the project and to which the section may apply.

        1. Debt percentages relating to the excess debt entity and the public project debt are determined under this subpart as if—

        2. the excess debt entity has no debt other than the public project debt for the project, no assets other than the public project assets for the project and assets used in performing the project, and no non-debt liabilities other than non-debt liabilities that relate to the project; and
          1. the New Zealand group of the excess debt entity is the excess debt entity.

            1. If the debt percentage of the excess debt entity’s New Zealand group exceeds the threshold debt percentage given by section FE 5(1), the excess debt entity is treated as deriving an amount of income under section CH 10B (Interest apportionment: public project debt) that is calculated, treating the value of a fraction with a zero denominator as being zero, using the formula—

              (unrestricted interest × unrestricted excess ÷ unrestricted debt) + (member interest × member excess ÷ member debt).

              Where:

              • In the formula,—

              • unrestricted interest is the amount of interest expenditure incurred by the excess debt entity from the amount of public project debt referred to in the item unrestricted debt:
                1. unrestricted excess is—
                  1. zero, if the amount of public project debt that is not public project participant debt does not exceed the amount (the threshold debt amount) obtained by multiplying the value of the public project assets and assets used in performing the project by the threshold debt percentage given by section FE 5(1) for the excess debt entity’s New Zealand group:
                    1. the amount of the item unrestricted debt, if the amount of public project debt that is not public project participant debt and not included in the item unrestricted debt equals or exceeds the threshold debt amount:
                      1. the amount by which the amount of public project debt that is not public project participant debt exceeds the threshold debt amount, if subparagraphs (i) and (ii) do not apply:
                      2. unrestricted debt is the amount of public project debt that is not public project participant debt and for which the creditor has security for repayment that is not restricted to the project:
                        1. member interest is the amount of interest expenditure incurred by the excess debt entity from public project participant debt:
                          1. member excess is—
                            1. zero, if the amount of public project debt does not exceed the threshold debt amount:
                              1. the amount of public project participant debt, if the amount of public project debt that is not public project participant debt equals or exceeds the threshold debt amount:
                                1. the amount by which the amount of public project debt exceeds the threshold debt amount, if subparagraphs (i) and (ii) do not apply:
                                2. member debt is the amount of public project participant debt.

                                  1. This section applies separately to each project of an excess debt entity for which the excess debt entity has public project debt.

                                  2. Public project debt, interest on public project debt, public project assets and other assets, and non-debt liabilities, taken into account in the application of this section to an excess debt entity for a project are excluded from the debt, interest, assets, and non-debt liabilities, of the excess debt entity taken into account in the apportionment of interest expenditure for another project or under another section of this subpart.

                                  Notes
                                  • Section FE 7B: inserted, on , by section 23(1) (and see section 23(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).