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HMRC internal manual

International Manual

HM Revenue & Customs
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Transfer pricing: the main thin capitalisation legislation: Interaction between claims by lenders and guarantors

Interaction between TIOPA10/S182 and TIOPA10/S192 claims

There are occasions, provided for by TIOPA10/S193(2), where:

  • a guarantor makes a TIOPA10/S192 claim, and
  • a lender makes a TIOPA10/S182 claim

in relation to the same security.

If this is the case, TIOPA10/S193(3) and (4) operate to ensure that there is parity between interest deductions and receipts so that the thin cap disallowance and related compensating adjustment claims match.

TIOPA10/S193(3) applies where the guarantor claims first. In this case, the lender’s claim is not refused, but the lender is treated as not only receiving the adjusted (decreased) amount of interest income from the borrower as corresponds to the borrower’s adjusted interest deduction, but will also be treated as receiving (increased) taxable amounts corresponding to those deductions claimed in the guarantor’s computations.

Under TIOPA10/S193(4), if the lender claims first and makes no adjustment under S193(3) above, the guarantor’s claim to those deductions is disallowed. This means that in those circumstances the guarantor can only get a deduction for payments that the lender recognises as taxable.