INTM513030 - Thin capitalisation: practical guidance: opening a case: reasons for not taking up a case

There are several reasons why it may not be appropriate to consider thin capitalisation aspects of a company.

Do the transfer pricing rules apply?

The exemption for small and medium-sized enterprises (SMEs) is discussed in more detail in the transfer pricing guidance at INTM412070. It is expressed in terms of number of employees, turnover and balance sheet value. The current definition came into force on 1st January 2005.

There is also an important additional condition for SME exemption; that the same data will be added together for all linked enterprises in making the calculation, which means that group companies will be aggregated, and small companies of a significant group are unlikely to qualify for exemption.

Points never to lose sight of

It may appear to be stating the obvious, but the following key points should be considered before becoming embroiled in an enquiry and borne in mind as it proceeds:

• What are the transactions?
• Who are the parties to the transactions?
• Is there the necessary control relationship between them?
• How much tax is at stake?
• Which legislation applies?

Do the facts obtained tick all boxes for the legislation to apply?

At the risk assessment stage, some or all of the answers may be uncertain, but the questions should be revisited as information is acquired.