INTM573070 - Thin capitalisation: the Advance Thin Capitalisation Agreement: Criteria for acceptance of an ATCA application

There are no criteria such as turnover or level of debt restricting acceptance of ATCA applications, and none are planned, though guidelines might be drawn up if experience begins to suggest that it would be constructive to do so i.e. if resources start to become overstretched and HM Revenue and Customs is obliged to become selective. The Statement of Practice (04/2007) says that situations “where the financing arrangements in place do not appear to be significant commercial issues for the company” are likely to be unsuitable for pre-return agreements. However, HMRC do not want to be prescriptive unless for practical reasons that becomes necessary.

Applications are only likely to be rejected at the outset if information provision is inadequate, and where this has happened, Business International has suggested that the application be returned to sender with a request to resubmit. This is felt to be preferable to embarking on what might be a drawn out process of information gathering.

Cases are obviously more likely to be accepted straight away as applications where the information is comprehensive, clearly presented and accompanied by a draft agreement, allowing for the possibility of only limited HMRC input to produce an agreement.

There have been a number of cases which have folded at an early stage because the company sought to put excessively narrow limits on scope of HMRC’s ability to consider the background and implications of funding transactions.