INTM573010 - Thin capitalisation: the Advance Thin Capitalisation Agreement: Introduction to the ATCA process

The change applies to applications for thin cap agreements as follows:

• those which relate to funding which is the subject of a treaty clearance application received after 21st March 2007 by the DT Treaty Team previously located within HMRC’s CAR Residency and now to be found at LBS Nottingham, or
• those which are not linked to a treaty claim (loans with no withholding tax implications).

After 21st March 2007, thin cap agreements fall under the Advance Pricing Agreement legislation at FA99/S85-S87. Statement of Practice 04/07 gives a thorough explanation of most aspects of the new approach, supplemented by Revenue & Customs Brief 01/09, which explores and clarifies issues which have been raised since the Statement of Practice was issued. A “Model ATCA” (which is reproduced starting at INTM582100) was published alongside the Statement of Practice. This is intended to offer a format and form of words which is acceptable to HMRC. It is not intended to be followed rigidly where something more tailored to particular circumstances is appropriate.

• Treaty clearances will now be dealt with by the DT Treaty Team without reference to the CT office, and will not be held up for thin cap enquiries.
• For clearance applications which were lodged with CAR Residency before 22nd March, the pre-ATCA process still applies (see the chapter from INTM574000).
• The thin cap ATCA process is administratively separate from the transfer pricing Advance Pricing Agreement programme. ATCAs will be unilateral and are co-ordinated by financial specialists in the Transfer Pricing Team at Business International. However, irrespective of such differences, in legislative terms an ATCA is just as much an advance pricing agreement within the meaning of FA99/S85-S87.
• The ATCA process is separate from the treaty clearance application, which must still be submitted to LBS Nottingham by the overseas lender.
• Some treaty clearances have in the past been given on the provisional basis that the clearance does not prejudice any later enquiries under ICTA88/SCH28AA. If any such enquiries still exist, agreement should be made under the ATCA provisions.
• ATCAs can now also cover funding such as Eurobonds or discounted loans where there is no obligation to withhold income tax and therefore no need for a treaty clearance application to LBS Nottingham.