Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Chapter INTM519040

Document Cited authorities 1 Cited in Related
Vincent
Published date09 April 2016
Record NumberINTM519040
Position for accounting periods starting on or after 4 March 2005

The provisions of TIOPA10/S158 onwards apply the transfer pricing rules where persons have participated indirectly in the management, control or capital - in the more familiar words of ICTA88/Sch 28AA/PARA4A, “acted together” - in relation to the financing arrangements of a company or partnership. The legislation is considered at INTM413180.

“Acting together” has a very wide meaning and it is unnecessary for a loan provider to have an equity interest in the borrower for the loan to be within the scope of the legislation.

In the context of a leveraged buyout, all of the finance providers involved in the transaction may be within the scope of the legislation, so each of the loans will need to be considered to determine whether they are lending on arm’s length terms. However, in normal circumstances, the risk of non-arm’s length lending is likely to be low where the loan is from a senior or mezzanine lender who is otherwise unconnected with the equity investors.

In practice, the more significant risk is that the shareholder debt may not be on arm’s length terms. However, there will be circumstances where non-shareholder debt may also need to be considered critically; for instance, where the buyout is part financed by loans from the vendor, or any loan that is, in substance, an equity investment. If the lending occurs as part of a deal in which the lender acquires or disposes of their shares, the implications of the lending and the share transaction happening at the same time should be considered.

Another scenario which requires careful consideration is where the borrower is in a distressed situation and subject to a financial restructuring, and as a consequence, either

  • a lender - who previously had no stake in the equity of a business, becomes an equity investor, or
  • an existing equity investor increases their stake as part of the restructuring.

In these situations a risk exists that the refinancing by the lender is influenced by their stake in the business and the lending is not an arm’s length provision.

Transitional rules for pre-4 March 2005 financing arrangements (grandfathering)

Where the financing arrangements in question...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT