INTM576040 - Thin capitalisation: working a case - knowledge and negotiation: Negotiating a solution

As indicated in INTM576030, there is little chance of finding a single correct answer in a thin capitalisation case. There is a range of answers within which one can be reasonably sure that a particular value approximates to the arm’s length standard, and it is a matter of judgement where a particular case falls within that range. This means that, where it cannot be agreed that the transaction as presented constitutes an arm’s length position, it will usually be necessary to negotiate a solution to a case.

In negotiating the solution a variety of factors need to be taken into account. These include:

• the individual set of facts associated with the case - see INTM573050 and INTM575010on information gathering 
• a consideration of the most appropriate way to describe the arm’s length standard for the case - see for example INTM578060 on how the nature of the commercial activities of a company influences debt, and the chapters starting at INTM578000 and INTM578000 for information on using debt- and interest-related ratios in assessing the arm’s length position
• the need to ensure that a proposed negotiated settlement is consistent with HM Revenue & Customs parameters for an acceptable settlement - see INTM571040 on getting assistance with any aspect of the case.

If the above points appear tentative, that is because there is no single answer. The ultimate aim is to get to a common sense, balanced view taking into account all the relevant information.