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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer pricing: the main thin capitalisation legislation: Summary of sections specific to thin capitalisation

Thin cap-specific legislation

The basic transfer pricing legislation, which applies to finance as much as it applies to goods and services, is discussed starting at INTM412010.

There are specific sections within TIOPA10/Part 4 that apply only to loans between two companies:

  • TIOPA10/S152 requires that in the case of lending between companies, certain factors to be considered when comparing the arm’s length provision with the actual provisions in TIOPA10/S147(1)(d). See INTM413100 
  • TIOPA10/S181 to TIOPA10/S184 sets out the conditions required for a lender to make a valid compensating adjustment claim where a disallowance has been made in the borrower’s computations. See INTM413140 
  • TIOPA10/S153 deals with the factors that are taken into account when a loan is supported by a guarantee, and the borrower and the guarantor have a special relationship. See INTM413160 
  • TIOPA10/S191 to TIOPA10/S194 sets out the conditions required for a guarantor to make a valid compensating adjustment claim. See INTM413150 


TIOPA10/Part 4 applies to loans made to companies by non-corporates where the participation condition in TIOPA10/S148 is met. However, the explicit instructions regarding factors to be considered as part of evaluating the arm’s length provision in TIOPA10/S152 and TIOPA10/S153 do not apply directly as legislation to loans by non-corporates. Even so, the factors that are set out in TIOPA10/S152 and TIOPA10/S153 are generally those which are taken into account by lenders and borrowers acting at arm’s length, so in practice the nature of the lender, corporate or non-corporate will have little if any impact on how the arm’s length provision is determined.

Claims for compensating adjustments by non-corporates can be made under the conditions in TIOPA10/S174 to TIOPA10/S178 (Para 6 of Sch 28AA).

“Acting together”

The acting together provisions in TIOPA10/S161-S162 widen the participation requirements in TIOPA10/S148 (INTM412020) for financing arrangements, including loans. See INTM413180 for more detail on this issue.