Transfer pricing rules also apply to financing arrangements. Loans between connected companies where one of those companies controls the other, or where both are under common control, are subject to the regime.

The transfer pricing legislation takes precedence over the loan relationships legislation and the rules on the corporate interest restriction. See the Corporate interest restriction ― overview guidance note.

The same principles of transfer pricing, as set out in the UK transfer pricing in practice guidance note, apply to financing transactions. Additional details and examples are provided in Chapter X of the OECD Transfer Pricing Guidelines republished in 2022.

One important aspect of transfer pricing for loans is thin capitalisation, ie a company does not have enough capital to support the debt. A company will be considered to be thinly capitalised where:

1. •

   a loan exceeds the amount which the borrower would or could have borrowed from an independent lender, or

2. •

   the terms of the loan differ from those that would have been agreed with such a lender, eg a higher interest rate

For