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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: the Advance Thin Capitalisation Agreement process: what types of transactions are within the ATCA regime?

TIOPA10/S218(2) lists the matters to which the APA legislation may apply.

S218(2)(e) covers transfer pricing as it affects lending, referring to the applicant as A. The legislation covers:

“the treatment for tax purposes of any provision made or imposed, whether before or after the date of the agreement, as between A and any associate… of A’s.”

The scope of ATCAs is therefore limited to the transfer pricing of funding as governed by Part 4 of TIOPA10.

As for the kinds of funding which ATCAs include, Statement of Practice 01/12 says that:

funding arrangements suitable for ATCAs include, but are not restricted to, intra-group loans, quoted Eurobonds, and cases of indirect participation (“acting together”), but this is not intended to be an exhaustive list

It therefore covers types of lending which do not require treaty clearance, for example, funding using a quoted Eurobond or discounted bond, forms of debt provision which would previously not have been within the scope of a thin cap forward agreement.

The ATCA process was not created to deal with other financial transfer issues such as imputation of interest on outward investment, but there is no reason why the concept should not be applied, with modifications, to such other financial transfer pricing issues, as long as the distinction between ATCAs and the Advance Pricing Agreement programme supervised by Business, Assets & International.

An ATCA cannot apply to other legislation, for example:

  • the 2005 anti-arbitrage legislation has its own clearance process, monitored by arbitrage specialists at Business, Assets &  International. However, where a company has made an arbitrage clearance application alongside an ATCA application, so that broadly the same set of transactions are to be reviewed from two perspectives, HMRC will try to deal with them in a co-ordinated a way. Detailed instruction on arbitrage start at INTM594500.
  • the unallowable purpose legislation at CTA09/S441 (formerly FA96/SCH9/PARA13) may be considered at the same time as thin cap, but that will not necessarily be the case. Future certainty cannot be provided regarding the application of s441. Purpose can change over time, and borrowing can become detached over time from its original purpose. There is guidance on CTA09/S441-S442 starting at CFM38100 in the Corporate Finance Manual.
  • world-wide debt cap legislation
  • the compensating adjustment legislation in TIOPA 2010 Part 4.

Those responsible for negotiating ATCAs should bear in mind that an ATCA application deals with a particular area of legislation and is intended to take a matter of months to complete.

If other issues arise in the course of considering the ATCA, it may be advisable to discuss with the company whether it is necessary, preferable or appropriate to explore other issues at the same time. It may be no more than a matter of considering how far another issue may impinge on anything agreed in arriving at the ATCA and finding a way of accommodating that prospect. HMRC should guard against pursuing an enquiry relating to other legislation under the umbrella of the ATCA process, but equally it is a waste of resources to spend time on an ATCA where the element of certainty is in doubt because of the anticipated impact of other legislation.