INTM572060 - Thin capitalisation: an overview of thin cap work: Request from a company for a thin capitalisation agreement where no treaty claim has been made

It is not uncommon for a UK company or its agent to contact HM Revenue & Customs with a view to requesting a thin cap forward agreement (now an Advance Thin Cap Agreement), even though no claim has been lodged with the DT Treaty Team at LBS Nottingham (formerly the responsibility of Charity Assets & Residence) regarding the withholding tax position. This may be because the funding involved does not actually require a treaty claim (funding by quoted Eurobonds, for example). Whatever the case, there is nothing to inhibit the process of negotiating a thin cap agreement at that stage, provided an assurance is obtained from the company or agent that, if the form of funding requires it, a valid formal treaty clearance application will be made to the LBS team in a timely manner. It should be made clear, however, that until treaty clearance has been granted, any interest paid to an overseas lender should have tax deducted from it and paid to HMRC.

It is important that companies do not mistake the negotiating process leading to an ATCA (or the earlier form of thin cap agreement) for the treaty clearance process itself.

• The treaty application is made to the DT Treaty Team at the LBS by or on behalf of the lender; it is an ITSA claim which is handled by the LBS team.
• An application for a thin cap agreement (for pre-ATCA periods, that may have included a request for HMRC’s confirmation that no agreement is needed) is made either to Business International, the borrower’s CT office, or to a transfer pricing specialist, by or on behalf of the borrower.

These represent two separate taxpayer relationships - the former an income tax claim, the latter either an ATCA application under the APA legislation or a CTSA enquiry. It should be borne in mind that not all ATCA applications will entail a treaty clearance application.

Equally, a CTSA enquiry into a company’s funding cannot serve as a substitute or proxy for a treaty clearance application.