The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

• Transfer pricing and financing arrangements
• Transfer pricing and the amount of loan
• Transfer pricing and interest rate
• Transfer pricing and guarantees
• Compensating adjustments for interest
• Advance thin capitalisation agreements (ATCAs)

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Transfer pricing rules also apply to financing arrangements so loans between connected companies where one of those companies controls the other or where both are under common control are subject to the transfer pricing rules The transfer pricing legislation takes precedence over the loan relationships legislation TIOPA 2010 s 147 CTA 2009 s 446 The same principles of transfer pricing as set out in the UK transfer pricing in practice guidance note apply to financing transactions and additional detail and examples are provided in the OECD s Transfer Pricing Guidance on Financial Transactions which will become part of the main OECD Transfer Pricing Guidelines in due course One aspect of transfer pricing for loans is thin capitalisation A company will be considered to be thinly capitalised ie it does not have enough capital to support the debt where a loan exceeds the amount which the borrower would or could have borrowed from an independent lender or the terms of the loan differ from those that would have been agreed with such a lender eg a higher interest rate TIOPA 2010 s 152 INTM413200 Where thin capitalisation occurs the interest on the excessive part of the loan will be disallowed as a deduction in arriving at the assessable profits or allowable losses of the borrower See Exampl