INTM413040 - Transfer pricing: the main thin capitalisation legislation: Summary of sections specific to thin capitalisation

Thin cap-specific legislation

»Ê¹ÚÌåÓýapp basic transfer pricing legislation, which applies to finance as much as it applies to goods and services, is discussed starting at INTM412010.

»Ê¹ÚÌåÓýappre are specific sections within TIOPA10/Part 4 that apply only to loans between two companies:

  • TIOPA10/S152 requires that in the case of lending between companies, certain factors to be considered when comparing the arm’s length provision with the actual provisions in TIOPA10/S147(1)(d). See INTM413100
  • TIOPA10/S181 to TIOPA10/S184 sets out the conditions required for a lender to make a valid compensating adjustment claim where a disallowance has been made in the borrower’s computations. See INTM413140
  • TIOPA10/S153 deals with the factors that are taken into account when a loan is supported by a guarantee, and the borrower and the guarantor have a special relationship. See INTM413160
  • TIOPA10/S191 to TIOPA10/S194 sets out the conditions required for a guarantor to make a valid compensating adjustment claim. See INTM413150

Non-corporates

TIOPA10/Part 4 applies to loans made to companies by non-corporates where the participation condition in TIOPA10/S148 is met. However, the explicit instructions regarding factors to be considered as part of evaluating the arm’s length provision in TIOPA10/S152 and TIOPA10/S153 do not apply directly as legislation to loans by non-corporates. Even so, the factors that are set out in TIOPA10/S152 and TIOPA10/S153 are generally those which are taken into account by lenders and borrowers acting at arm’s length, so in practice the nature of the lender, corporate or non-corporate will have little if any impact on how the arm’s length provision is determined.

Claims for compensating adjustments by non-corporates can be made under the conditions in TIOPA10/S174 to TIOPA10/S178 (Para 6 of Sch 28AA).

“Acting together�

»Ê¹ÚÌåÓýapp acting together provisions in TIOPA10/S161-S162 widen the participation requirements in TIOPA10/S148 (INTM412020) for financing arrangements, including loans. See INTM413180 for more detail on this issue.