INTM573040 - Thin capitalisation: the Advance Thin Capitalisation Agreement: Scope of the ATCA - legislation and issues covered

The scope of ATCAs is limited by the advance pricing agreement legislation at FA99/S85 - S87 to matters relating to transfer pricing governed by Schedule 28AA ICTA 1988. An ATCA cannot extend to other legislation, though there are also practical reasons why it would be inappropriate:

• The 2005 legislation to counter avoidance through arbitrage falls outside the ATCA regime and outside the governance processes of the Transfer Pricing Group. It is subject to its own clearance process, controlled by the arbitrage specialists within the Transfer Pricing Team at Business International. However, where a company has made an arbitrage clearance application alongside an ATCA application, so that broadly the same set of transactions will be reviewed from two perspectives, HM Revenue and Customs will endeavour to deal with them in a co-ordinated a way. Detailed instruction on arbitrage start at INTM594500.
• CTA09/S441 (formerly FA96/SCH9/PARA13) - It is sensible that the unallowable purpose legislation should be considered at the same time as thin cap, but that will not necessarily be the case. If HMRC does look at s441 while negotiating an ATCA, it should be able to say whether it considers that the legislation applies at that time to those transactions. This is not a “clearance”; any reassurance HMRC can give will be limited to conditions that existed at the time of the transactions, and cannot provide any form of comfort about the application of s441 in subsequent periods. Purpose can change over time, and borrowing can become detached from its original purpose. The purpose defined in s442 is an annual and subjective one, and it would not be possible to create a set of rules equivalent to thin cap covenants to measure such change. There is guidance on CTA09/S441-S442 starting at CFM38100 in the Corporate Finance Manual