PFI and transfer pricing

The Government recently announced that it will provide debt funding alongside commercial lenders and the European Investment Bank for private finance initiative projects.

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.

HMRC have published Revenue & Customs Brief 26/09 explaining the application of the transfer pricing rules in such circumstances.

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...