A history of EU law and thin capitalisation and transfer pricing regimes [Archived]

Produced in partnership with Kelly Stricklin-Coutinho

Practice notes

A history of EU law and thin capitalisation and transfer pricing regimes [Archived]

Produced in partnership with Kelly Stricklin-Coutinho

Practice notes

ARCHIVED: This Practice Note has been archived and is not maintained.

thin capitalisation and transfer pricing are related but slightly different concepts. Some consider that thin capitalisation rules are a specific expression of transfer pricing rules.

EU law applies in the context of thin capitalisation and transfer pricing in that, although direct tax is not within the competency of the EU, domestic rules must still comply with general principles of EU law and with the treaty in force at the time (currently the Treaty of the Functioning of the European Union) (the Treaty).

The key Treaty provisions relevant to thin capitalisation and transfer pricing are those on non-discrimination in respect of the fundamental freedoms. Potentially applicable freedoms are:

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freedom of establishment
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free movement of capital, and
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free movements of goods and services

What are transfer pricing and thin capitalisation?

Transfer pricing rules are generally rules that:

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consider transfers of value between related entities, and
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entitle the taxing authority to substitute a market value for

Kelly Stricklin-Coutinho

Kelly specialises in International Tax Planning, Direct Tax, Tax litigation and enquiries, EU Law, Remedies in Tax Disputes and Commercial Litigation.

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Jurisdiction(s):

United Kingdom

Key definition:

Thin capitalisation definition

What does Thin capitalisation mean?

A company is said to be 'thinly capitalised' when its capital is made up of a much greater proportion of debt than of equity, ie, its gearing or leaverage is too high.

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