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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: the Advance Thin Capitalisation Agreement process: criteria for acceptance of an ATCA application

There are no fixed criteria such as turnover or level of debt restricting acceptance of ATCA applications, and none are planned, though criteria may be drawn up if for example resources start to become overstretched. The Statement of Practice (01/12) says that

The process is designed to help resolve financial transfer pricing issues which have a significant commercial impact on an enterprise’s results, where the issues would be unlikely to be regarded as “low risk” by HMRC, or where the arm’s length provision is a matter of doubt.

However, HMRC do not want to be prescriptive unless for practical reasons that becomes necessary.

Applications are only likely to be turned away upon submission because they are inadequate in some respect. If this happens, Business International recommends returning the application with advice on what needs to be done to make it acceptable. This is preferable to accepting the application and then embarking on a piecemeal process of information gathering. This should be couched in terms of the need to complete the application, rather than framing the response in terms of outright rejection.

If no proposals for an agreement are supplied, they will be requested and the application will not be considered until they are received.

Applications are obviously more likely to be accepted straight away and dealt with quickly where the information is comprehensive, clearly presented and accompanied by a draft agreement proposing reasonable terms.

A number of applications have run into trouble at an early stage because the company sought to put unreasonable limits on HMRC’s ability to consider the background and implications of funding transactions.