On 28 November 2007, HM Revenue & Customs (HMRC) published Statement of Practice 04/07, which extends the circumstances in which a UK business can enter into a thin capitalisation advance pricing agreement with HMRC under the transfer pricing legislation. The agreement will provide the taxpayer with certainty as to the tax deductibility of interest payments made in accordance with the agreement.

HMRC also published a model thin capitalisation agreement, which it hopes will be an appropriate model for a significant proportion of applicants.

NOTE ADDED 14 April 2008: HMRC has published guidance on the approach it will take to breach by the taxpayer of the financial covenants in a thin capitalisation agreement (which HMRC refers to as advance thin capitalisation agreements, or ATCAs), see Guidance.