INTM575010 - Thin capitalisation: working a case - the earliest stages: Gathering preliminary information
Whether the case arises from the examination of an application for an Advance Thin Capitalisation Agreement (“ATCA”) or as a post-return enquiry, much the same information will be required for a proper examination of the issues. For post-return enquiries, the issues may be more focused and the information requirements narrower.
SP04/07 and Revenue & Customs Brief 01/09 provide guidance to companies on the kind of information which should be included in a well-constructed ATCA application (see also INTM573000 onwards on ATCAs), and this would provide a good checklist for a post-return enquiry. The information should be gathered as comprehensively as possible, as appropriate to the case.
There is a comprehensive list at INTM573010 of the sorts of information which the applicant should provide.
Discretion should be exercised when requesting information, either in enquiry or ATCA work. Documents such as loan agreements, diagrams indicating changes in group structure, and forecasts are essential at an early stage, but there may be information which it would be less onerous and often preferable to discuss first, face-to-face with the people involved. Further material, perhaps highlighting specific vulnerable areas, can be requested in the course of or following the discussions.
The aim is to gather information quickly with a view to discussing anything requiring further exploration or clarification at a face-to-face meeting, unless the facts are so straightforward and the funding profile sufficiently reasonable for the case to be settled on the basis of what has been provided.
While some further information may be key to understanding the transactions and the financial position of the borrower, specific information requests are preferable to all-embracing ones, and their relevance will normally be clear to the taxpayer. If the initial ATCA “information pack” is inadequate, this should be pointed out in those terms, and the applicant should be invited to complete it, rather than resorting to piecemeal information gathering at that point. It should not be necessary to reject the application unless information provision remains poor.
Using the internet
It is surprising how much information can be obtained online, whether from a company’s own website, industry commentators or official sources. If the enquiry arises out of the financing of a significant merger or acquisition, there will be information about who in fact took over whom, how the transaction was effected at the highest level (whether by share exchange, cash, or a mixture), what commentators thought about it both before and afterwards, and what observers believed were the true prospects for the newly enlarged entity. Sources have to be treated with care, since posting material on the internet does not always make it true, but a little research can provide context, background and outsider views.
The Edgar Database (US Securities & Exchange Commission site) provides the full text of US corporations’ filings. The 10-K annual return is very detailed and can be very informative on the structure and activities of US-owned groups, and the financing policies and structure of the global group. The site may be accessed, free, at: http://www.sec.gov/edgar/searchedgar/webusers.htm.
A few words of warning - before printing off a complete 10-K, consider that they can run to more than 150 pages. It is easier to search onscreen (CTRL + F brings up the Find box) and print only specific pages; the document can be saved for future reference.
Canada’s SEDAR site offers similar access to documents filed by public companies.
