The entity considered for thin capitalisation evaluation

The separate entity principle is part of the basic precondition in TIOPA10/S147(1)(d). This defines the arm's length provision as that ‘which would have been made as between independent enterprises’. The arm's length borrowing capacity of the borrower is therefore the debt which it could and would, as a stand-alone entity, have taken on from an independent lender. To establish this, it is necessary to consider the borrower separately from other members of the same group of companies This is the ‘separate entity’ or stand-alone basis for determining borrowing capacity.

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