INTM573110 - Thin capitalisation: the Advance Thin Capitalisation: Monitoring the ATCA Agreement

Statement of Practice 04/07 says:

34. The agreement will contain provisions relating to its monitoring. As with monitoring agreements under the treaty route, the ATCA might include specific reporting requirements such as a requirement to show that agreed covenants have been satisfied in the corporation tax computation. The wording of any such reporting requirement would be incorporated into the ATCA and is in accordance with section 86(4).

FA99/S86(4) refers to the responsibility to supply reports and other information, as required under the agreement and by virtue of a request by HM Revenue and Customs in accordance with the agreement.

Reporting requirements will normally be annual, satisfied by a schedule or computation accompanying the borrower’s annual return. The agreement should specify the form and timing. The Model ATCA issued alongside Statement of Practice 04/07 includes examples of how calculations are carried out to test whether covenants have been met.

Whatever formulae or calculations are to be employed, it is useful to include an example as an appendix to the agreement, demonstrating what is to be submitted and ensuring that both sides understand what is required and how it should be presented. It is worth spending some time making sure that the annual reporting will be in a form that will make sense to people other than those involved in negotiating the agreement.

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