INTM575040 - Thin capitalisation: working a case - the earliest stages: Pre-return enquiries - no informal comfort

The only form of pre-return enquiry likely to occur, now the number of thin capitalisation cases falling within the “old” treaty clearance-linked process is dwindling, is an Advance Thin Capitalisation Agreement (“ATCA”) application from the borrower or their agents.

If a company does make an approach to HM Revenue & Customs, wanting a certain amount of comfort or a modicum of certainty about its thin cap position, they should be advised to pursue that by way of an ATCA application. There is no halfway house.

There is nothing to prevent discussions taking place about the ATCA process (see below), but no informal understanding can be reached. If the company does not wish to follow the ATCA route, but the transactions merit further scrutiny, then an HMRC-initiated enquiry can be taken up once the return for the period of the transactions is received.

This does not preclude a reasonable amount of informal discussion with the borrower about the timing and mechanics of the ATCA process, what the timetable for dealing with it might be, etc, but the question as to whether an application should be made is a judgement call for the potential applicant. Estimates by HMRC as to the likelihood of an enquiry ever taking place in relation to a particular set of transactions are likely to be misleading and cannot be binding.