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HMRC internal manual

International Manual

Thin capitalisation: practical guidance: the Advance Thin Capitalisation Agreement process: renewing the ATCA

In the past, because they tended to be linked, thin cap agreements tended to run in parallel with periods of treaty clearance, so that both came up for renewal every 3-5 years. Treaty clearances are now dealt with separately, but five years remains the maximum term for a thin cap agreement, and a shorter agreement may be appropriate, depending on how predictable the future of the company may be.

“Renewal” suggests a minimal change in circumstances since the last agreement was concluded, which is highly unlikely. It may be reasonable to effectively “renew” an agreement where there is little reason to amend the terms, but all aspects of the old agreement should be reviewed and their continued relevance tested. A “renewal” is not an opportunity to skimp on the ATCA process’s information requirements (INTM512050).

If it is genuinely felt that a more limited exercise is appropriate, the company should approach HMRC to discuss whether this would be acceptable and what it would consist of. The default position however remains the thorough approach set out in INTM512050.

However far the agreement is treated for practical purposes as renewed rather than made afresh, it will be a separate Advance Thin Capitalisation Agreement, made under TIOPA10/S218-S230.

Extending the ATCA

If an ATCA is close to expiry, and funding will be substantially renegotiated within 18 months to two years of that date, it may be possible to extend the ATCA to the terminal date of the funding. This can only be contemplated if the agreement has thus far worked smoothly, has served its purpose well, and is likely to continue to do so. This does not include an agreement where there have been major breaches rectified by matching disallowances. If the company is in this circumstance, the matter should be discussed with the CCM or a transfer pricing specialist. This is not an opportunity to enter into a “mini-ATCA” or an “ATCA-lite”.