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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: the Advance Thin Capitalisation Agreement process: when can an ATCA application be made, and what periods can it apply to?

Timing of the application

An application is not in advance unless it precedes the return to which it is intended to relate. Once agreed, it provides the basis on which part of the return is made. If the application concerns new transactions, it should ideally be submitted close in time to when they took place, which will be long before the tax return covering that period falls due.

ATCAs do not operate as pre-transaction rulings, but it is acceptable to make an application where plans are well-enough advanced for there to be every reason to believe that transactions are about to be carried out as described in the application.

HMRC will not assist with fine tuning proposals, testing where the boundaries lie between what is acceptable and what is not, or optimising tax efficiencies.

ATCAs and real time working

HMRC is committed to “real time” working on ATCAs, but can only engage fully when the applicant has actually made a formal application with firm proposals for agreement. Prior discussions with the CCM or a transfer pricing specialist will be limited. See INTM480050 on thin cap and “real time working”. It is important that this process is respected and that companies do not expect to drift from discussion to ATCA.

Retrospective ATCAs

While an ATCA is intended to apply to chargeable periods for which no return has been made (or is yet due), the agreement may also apply to periods which have ended before the agreement is concluded. TIOPA10/S224(1) allows the agreement to be effective for an earlier chargeable period, and in accordance with S224(3), it can provide for the manner in which any adjustments which need to be made for tax purposes as a consequence of the agreement.

Since an ATCA can operate retrospectively, there is no reason why an ATCA should not be submitted after an enquiry has been opened. The two can co-exist, with the ATCA application hopefully setting the pace. An ATCA submitted in the course of an HMRC enquiry should in the first place include any outstanding enquiry information, as well as any new information appropriate to the application. Earlier periods may be settled either as “roll back” of the ATCA terms to earlier years, or in a separate agreement detailing any revised figures.

If the ATCA process runs into difficulty in this phase, however, the solution will not be to walk away from the negotiating table, but to use information powers for the enquiry periods. HMRC cannot oblige the company to enter into an ATCA, though it may help both sides to capitalise on the accumulated knowledge and understanding held at the end of an enquiry.

The transfer pricing governance rules (see INTM453000 onwards) will apply to both the enquiry and the ATCA application.