INTM573020 - Thin capitalisation: the Advance Thin Capitalisation Agreement: When can an ATCA application be made, and what periods can it apply to?

Timing of the application

ATCAs are not intended as pre-transaction rulings, but it is acceptable to make an application where plans are well-enough advanced for there to be every reason to suppose that transactions are about to be carried out as described in the application.

HM Revenue and Customs should not be expected to spare resource to help with:

• fine tuning proposals
• testing where the boundaries lie between what is acceptable and what is not
• optimising tax efficiencies.

HMRC is committed to “real time” working on ATCAs, but only where the proposals are firm. Genuine uncertainties can be discussed.

An ATCA application will usually be submitted ahead of the return covering the period of the relevant transactions, but that does not preclude later submission.

Retrospective ATCAs

Para 19 of Statement of Practice 04/07 states that while an ATCA will normally operate prospectively in relation to chargeable periods beginning after the time the application is made, the agreement may relate to a chargeable period which has ended before agreement has been concluded. FA99/S86(1) allows the agreement to be effective for that chargeable period and in accordance with S86(7) it may set out any adjustments which need to be made for tax purposes as a consequence of the agreement.

Since an ATCA can operate retrospectively, there is no reason why an ATCA should not be submitted in the course of an HMRC post-return enquiry. Receiving an ATCA application will not nullify the thin cap aspects of the enquiry in any way, but the ATCA would be regarded as setting the agenda for the remainder of that part of the enquiry. An ATCA submitted in the course of an HMRC enquiry should in the first place provide any outstanding information which has been requested as part of the enquiry, as well as any new information appropriate to an ATCA application. Earlier periods may be settled either as “roll back” of the ATCA to earlier years or in a separate agreement detailing any revised figures. If the ATCA process runs into difficulty in this phase, however, the solution will not be to walk away from the negotiating table, but to use information powers, etc, in relation to periods for which a CTSA enquiry is open.

The existence of a CTSA enquiry means that the transfer pricing governance rules will apply (see INTM453000 onwards), although an ATCA has been submitted, so the progress of the negotiations will be subject to periodic review within TP governance.