INTM414430 - Financial transactions: Implicit support

Implicit Support

TIOPA10/S154 has been amended to carve out ‘implicit support’ from the definition of a guarantee and to allow the effects of implicit support to be taken into account when considering provisions under the transfer pricing rules. These amendments align the UK rules with the OECD Transfer Pricing Guidelines.

‘Implicit support’ means any incidental benefit, in relation to borrowing by a company, that it is reasonable to assume would arise to the company as a result of it having a participatory relationship with one or more other companies. This definition is intended to be interpreted to ensure consistency with the OECD TPG, as specifically provided for in TIOPA10/S164. More information on interpretation in accordance with OECD is available at INTM414120.

Implicit support should be considered an economically relevant characteristic of the borrower when considering the provision of finance but is not considered a standalone provision for the purposes of the legislation in Part 4 TIOPA. Implicit support does not require any payment to other group members.

The presence and effects of implicit support can be hard to evaluate, since the terms of such support are unlikely to be documented in a legal contract, so analysis may rely on further information gathering and understanding of the business. The degree of implicit support that may be considered appropriate, and its effects, will ultimately depend on the facts and circumstances of the borrower and the wider group.


Effects of implicit support

Implicit support may have an effect on the credit rating of an entity or the rating of any debt that it issues. An entity with strong links to the parent, that is integral to the group’s identity or important to its future strategy, typically operating in the group’s core business, would ordinarily be more likely to receive implicit support from other group members, and so may be determined to have a credit rating that is closely linked to the group rating.

In the case of an entity where there is evidence that little or no support would be provided by the wider group, it may be more appropriate on the prevailing facts and circumstances to consider the entity on the basis of its own stand-alone credit rating.

The effect of implicit support may be to reduce the cost of debt-funding for the borrower. However, in alignment with the reasoning for formal guarantees set out at INTM414410, the effect of implicit support should not increase the quantum of borrowing available to a borrower under the loan. More information on guarantees can be found at INTM414410.

 

Commencement provisions

These rule changes are subject to specific commencement provisions.

For borrowing that occurs on or after 1 January 2026, these rules have effect for chargeable periods of a person that end on or after 1 January 2026.

For borrowing that occurs before 1 January 2026, these rules have effect:

  • in relation to chargeable periods commencing on or after 1 January 2028; or 
  • where a person has elected that the amendments should apply to it for a chargeable period, in relation to a chargeable period ending on or after 1 January 2026.