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HMRC internal manual

International Manual

Cash pooling: UK company as long-term borrower in the cash pool

To the extent that UK companies are structural borrowers in the cash pool, this does not present a significant tax risk to the UK from a rate perspective, as it is likely that the interest rate being charged is less than the rate that would be charged based on the arm’s length principle, which is an expected benefit of participation as a borrower.

However, the quantum of debt should still form part of the overall assessment as to whether the company is thinly capitalised (an excessive level of debt compared to the amount that it would have as an independent enterprise).

Another consideration outside TP would be whether the interest should be treated as “yearly” and withholding tax applied under ITA2007/S874 if no clearance has been issued to pay interest gross.  The meaning of “yearly” is set out at SAIM9075 of the HMRC Manuals. In particular, the intention of the parties is seen as the most important question in deciding whether interest is yearly.  The CCM or caseworker could request a summary of the internal governance procedures that a group has put in place for the purpose of assessing whether any of the balances should have WHT applied on interest paid.