A history of EU law and thin capitalisation and transfer pricing regimes [Archived]
Produced in partnership with Kelly Stricklin-Coutinho

The following Tax practice note produced in partnership with Kelly Stricklin-Coutinho provides comprehensive and up to date legal information covering:

  • A history of EU law and thin capitalisation and transfer pricing regimes [Archived]
  • What are transfer pricing and thin capitalisation?
  • The interaction of EU law with transfer pricing and thin capitalisation
  • The UK rules on transfer pricing and thin capitalisation
  • The Thin Cap GLO
  • The UK’s rules: where are we now?

A history of EU law and thin capitalisation and transfer pricing regimes [Archived]

ARCHIVED: This Practice Note has been archived and is not maintained.

Thin capitalisation and transfer pricing are related but slightly different concepts. Some consider that thin capitalisation rules are a specific expression of transfer pricing rules.

EU law applies in the context of thin capitalisation and transfer pricing in that, although direct tax is not within the competency of the EU, domestic rules must still comply with general principles of EU law and with the treaty in force at the time (currently the Treaty of the Functioning of the European Union) (the Treaty).

The key Treaty provisions relevant to thin capitalisation and transfer pricing are those on non-discrimination in respect of the fundamental freedoms. Potentially applicable freedoms are:

  1. freedom of establishment

  2. free movement of capital, and

  3. free movements of goods and services

What are transfer pricing and thin capitalisation?

Transfer pricing rules are generally rules that:

  1. consider transfers of value between related entities, and

  2. entitle the taxing authority to substitute a market value for the value of the item transferred, as if the transaction had been effected on arm’s length terms

Thin capitalisation rules are generally intended to prevent the practice of ‘thinly capitalising’ a company, ie providing it with a minimal proportion of equity capital and a high proportion of debt capital, with the outcome

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