INTM566030 - Thin capitalisation: FA2004 legislation - thin capitalisation issues for securitisation structures

Profitability of the SPV

As a general rule it is reasonable that profit should be expected from any commercial activity. In a transfer pricing case it is necessary to consider the arm’s length amount of profit that should be realised by a SPV, and this should reflect the functions undertaken and risks borne by the SPV. If the SPV has few functions, and if there is little risk, the profit might be modest. However, taking ownership of assets and liabilities is unlikely to be wholly free from risk, so the expectation will be that the SPV will realise some profit, which will in general go beyond the very small amount that is sufficient to show that it is an investment company.