News › Weekly Alert Article

Thin Capitalisation Guidance: Changes to Note


Borrowing trends and the overall economic environment have undergone notable changes, prompting the UK tax authority (HMRC) to set out guidance for Tax Inspectors when selecting cases for audit. Taxand UK discusses the key changes as the HMRC tries to improve consistency across thin capitalisation and certainty rulings.

Groups with intra-group funding arrangements in the UK should be aware of key changes that have been made to thin capitalisation.

Taxand UK considers the full picture of the Thin Capitalisation changes

Taxand's Take

How do the changes impact business?
Whilst the language is formal, HMRC have also specified that: "When legal certainty through the ATCA process is not being sought, case teams may, with TPG input, give an indication, expressed in terms of the level of risk, of how HMRC might see the transfer pricing risk posed in the corporation tax return, once it is made. They should do this without entering into discussion on pricing, thereby, leaving no inference that any particular level of interest payable used in calculating profits in a tax return will be considered by HMRC to satisfy the requirements of the arm's length standard in the absence of an ATCA."

The reasons for the above changes are twofold
Limited resource at HMRC has necessitated a focused approach. It may, for example, be the case that, following a risk assessment, HMRC decides that the transfer pricing issues raised by a customer do not warrant detailed enquiries at that time. Whilst this has been the intention of the legislation for a number of years, the recent guidance confirms that HMRC International is not satisfied with the approach being taken by all Inspectors.

Your Taxand contact for further queries is:
Shiv Mahalingham
T. +44 207 715 5234


Taxand's Take Author