HMRC issues new guidance on thin capitalisation
April 07, 2010
In March 2010 HM Revenue & Customs (HMRC) released an update of the guidance in its International Manual on the UK’s thin capitalisation rules. This guidance is prepared primarily to assist inspectors of taxes in applying the thin cap legislation, but also offers useful insights into HMRC policy for taxpayers and advisers.
The new guidance reflects recent developments in HMRC’s approach to thin capitalisation cases, which is consistent with its recent overhaul of the administration of transfer pricing cases. This is unsurprising as, legislatively speaking, thin capitalisation is no more than one aspect of the transfer pricing code (although various other statutory provisions also potentially disallow intra-group debt deductions). The guidance is important reading for companies seeking to negotiate advance thin capitalisation agreements (ATCAs) with HMRC; but will also be relevant to companies facing enquiries into their thin capitalisation position, and should be considered by groups headquartered outside the UK when considering how to structure and capitalise their UK operations.
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