HM Revenue and Customs Brief 26/09
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Issued 6 April 2009
PFI and transfer pricing
On 3 March 2009, the Chief Secretary to the Treasury announced
plans for a temporary intervention into the funding market for Private
Finance Initiative (PFI) projects. All PFI projects that have issued an
Official Journal of the European Union notice and future PFI projects
as approved will be eligible.
The Government will provide debt funding alongside commercial
lenders and the European Investment Bank. It will also be able, where
necessary, to provide the full amount of debt required by a project.
The lending will be made by a financial institution established by the
Treasury, although it is intended that the loans will be sold on, prior
to maturity, as market conditions ease.
Questions may arise as to whether the application of the UK
transfer pricing rules could limit tax deductions for interest in
respect of this type of borrowing.
The transfer pricing rules can apply where a lender is
directly or indirectly participating in the management, control or
capital of the borrower. While it is unlikely that the Treasury’s
financial institution would be a direct participant, it is possible
that in certain cases it would be treated as indirectly participating
through the acting together rules (1).
This does not necessarily mean that transfer pricing
adjustments on the interest deductions will be required as transactions
within the scope of rules can be on arm’s length terms.
The Treasury’s financial institution will be offering the
funding on commercial terms determined by market conditions. HM Revenue
& Customs (HMRC) therefore consider that the lending between
the Treasury’s financial institution and a PFI Special Purpose Vehicle
is likely to represent a low risk in terms of transfer pricing.
HMRC's existing risk assessment guidance for PFI projects can
be found at INTM568000.
(1) The provisions in Para 4A Schedule 28AA
ICTA apply transfer pricing rules where “persons” (see existing
guidance in INTM432060) who collectively control a company or a
partnership have “acted together” in relation to the financing
arrangements of that company or partnership.
Acting together, in this context, is a broad
concept that applies to any circumstances that enable transactions to
be made other than on an arm’s length basis. i.e. there is the
potential for the result of a transaction or a series of transactions
to be other than an arm’s length result.
Financial Transfer Pricing Team
100 Parliament Street
By email: Daniel Berry
Telephone: 020 7147 2574
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Article Published/Sorted/Amended on Scopulus 2009-04-07 12:14:42 in Tax Articles