(b) F is a member of a partnership which is a non-UK resident entity and
F would be a UK resident bank if—

(i) both F and the partnership were UK resident entities,

(ii) the partnership carried on its activities in the United
5Kingdom,

(iii) where the partnership would be required to be an authorised
person for the purposes of FISMA 2000 in order to carry on
those activities in the United Kingdom, the partnership were
an authorised person with permission to carry on those
10activities, and

(iv) where those activities consist wholly or mainly of any of the
relevant activities described in the provisions mentioned in
paragraph 78(b) to (f), as a result of carrying on those
activities and having such permission the partnership would
15be a BIPRU 730k firm and a full scope BIPRU investment
firm.

(9) “Investment entity”—

(a) means an entity the business of which consists wholly or mainly of,
and the principal part of the income of which is derived from, the
20making of investments, and

(b) also includes any savings bank or other bank for savings.

13 (1) The exempt activities condition is met for the purposes of paragraph 12(1)(b)
if—

(a) at least 90% of the trading income of the relevant group for the
25chargeable period derives from exempt activities, or

(b) at least 50% of the trading income of the relevant group for the
chargeable period derives from non-financial trading activities.

(2) For this purpose, the trading income of the relevant group for the chargeable
period—

(a) 30consists of the items mentioned in sub-paragraph (3), and

(b) is to be determined by reference to—

(i) the amounts recognised in the group’s consolidated financial
statements for the chargeable period as prepared under the
applicable accounting standards, or

(ii) 35if no such financial statements are prepared, the amounts
which would have been so recognised had consolidated
financial statements for the group been prepared for the
chargeable period under international accounting standards.

(3) The items referred to in sub-paragraph (2)(a) are—

(a) 40the group’s gross income for the chargeable period arising from its
activities (other than net-basis activities) without taking account of
any deductions (whether for expenses or otherwise), and

(b) the group’s net income for the chargeable period arising from its net-
basis activities.

(4) 45In this paragraph—

• “activities” includes buying, holding, managing and selling assets;

• “the applicable accounting standards” means—

  (a)

  international accounting standards, or

  Finance (No. 3) BillPage 310

  (b)

  US GAAP if the members of the relevant group are
  determined under paragraph 4(7);

• “dealing on own account” has the same meaning as in Directive 2004/
  39/EC of the European Parliament and of the Council of 21 April
  52004 on markets in financial instruments (see Article 4(1)(6));

• “deposit” has the meaning given by article 5(2) of the Financial Services
  and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/
  544) but ignoring the exclusions in articles 6 to 9AB;

• “exempt activities” means—

  (a)

  10insurance activities, asset management activities and related
  activities, and

  (b)

  non-financial trading activities;

• “financial trading entity” means an entity which—

  (a)

  is an authorised person for the purposes of FISMA 2000 (see
  15section 31 of that Act),

  (b)

  is not UK resident, but if it were and it carried out its activities
  in the United Kingdom, would be required to be an
  authorised person, or

  (c)

  is not within paragraph (a) or (b) but carries on a trade
  20consisting wholly or partly in dealing in securities;

• “insurance activities” means—

  (a)

  the effecting or carrying out of contracts of insurance by a
  regulated insurer, and

  (b)

  investment business that arises directly from activities falling
  25within paragraph (a);

• “lending activities” means—

  (a)

  acceptance of deposits or other repayable funds,

  (b)

  lending of money, including consumer credit, mortgage
  credit, factoring (with or without recourse) and financing of
  30commercial transactions (including forfeiting),

  (c)

  finance leasing (as lessor),

  (d)

  issuing and administering means of payment,

  (e)

  provision of guarantees or commitments to provide money,

  (f)

  money transmission services,

  (g)

  35provision of alternative finance arrangements, and

  (h)

  other activities carried on in connection with activities falling
  within any of paragraphs (a) to (g);

• “net-basis activities” means activities normally reported on a net basis
  in consolidated financial statements prepared under the applicable
  40accounting standards;

• “non-financial trading activities” means activities carried on by an
  entity which is not a financial trading entity, other than—

  (a)

  lending activities, and

  (b)

  dealing on own account, with the exception of any hedging
  45transactions in relation to activities which (disregarding this
  exception) are non-financial trading activities;

• “regulated insurer”, in relation to the relevant group, means a member
  of the group which—

  (a)

  is authorised under the law of any territory to carry on
  50insurance business, or

  Finance (No. 3) BillPage 311

  (b)

  is a member of a body or organisation which is so authorised;

• “related activities” means—

  (a)

  activities which are ancillary to insurance activities or asset
  management activities of any entity which is a member of the
  5relevant group (whether or not the entity carrying on the
  insurance activities or asset management activities), and

  (b)

  activities which would not be carried on but for such
  insurance activities or asset management activities being
  carried on,

  10but does not include dealing on own account;

• “securities” includes—

  (a)

  shares,

  (b)

  rights of unit holders in unit trust schemes to which TCGA
  1992 applies as a result of section 99 of that Act, and

  (c)

  15in the case of a company with no share capital, interests in the
  company possessed by members of the company.

Part 4 Chargeable equity and liabilities

Definition of “assets”, “equity” and “liabilities”

14 (1) 20For the purposes of this Schedule, “assets”, “equity” and “liabilities” have
the same meanings as they have for the purposes of international accounting
standards.

(2) Sub-paragraph (1) is without prejudice to any provision of this Schedule
which requires anything to be determined by reference to amounts which
25are recognised, or amounts which would have been recognised, in
consolidated financial statements or financial statements prepared under
UK GAAP.

Chargeable equity and liabilities of a UK banking group or a building society group

15 (1) This paragraph applies if the relevant group is a UK banking group or a
30building society group.

(2) To determine the amount of the relevant group’s chargeable equity and
liabilities—

(a) determine the amount of the group’s equity and liabilities (other
than excluded equity and liabilities) as at the end of the chargeable
35period,

(b) adjust that amount in accordance with paragraphs 16 and 43 (so far
as applicable), and

(c) finally, reduce that amount (but not below nil) by—

(i) the amount of the group’s high quality liquid assets as at the
40end of that period, other than any asset which for the
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 16(4) applies, and

(ii) where sub-paragraph (4) applies, the amount determined
under that sub-paragraph.

(3) 45Sub-paragraph (4) applies where—

(a) as at the end of the chargeable period, the assets of the group include
a financial asset in respect of an advance of cash made by a member
of the group,

(b) that financial asset is not an asset which, for the purposes of an
5adjustment under sub-paragraph (2)(b), is an asset to which
paragraph 16(4) applies, and

(c) underlying that asset, as collateral, is an item (“the collateral”) owned
by that member which would form part of the group’s high quality
liquid assets as at the end of that period were the collateral, rather
10than the financial asset, an asset of the group.

(4) The amount within sub-paragraph (2)(c)(ii) is—

(a) the amount of the financial asset as at the end of that period or, if
lower, an amount equal to the fair value of the collateral as at that
time, or

(b) 15if this sub-paragraph applies in relation to more than one financial
asset, the total of the amounts determined under paragraph (a) in
respect of each of those assets.

(5) For the purposes of this paragraph and paragraph 16 the relevant group’s
assets, equity and liabilities are to be determined by reference to—

(a) 20the amounts recognised in the group’s consolidated financial
statements for the chargeable period as prepared under international
accounting standards or UK GAAP, or

(b) if no such financial statements are prepared, the amounts which
would have been so recognised had consolidated financial
25statements for the group been prepared for the chargeable period
under international accounting standards.

(6) In reducing the amount of any equity or liabilities under sub-paragraph
(2)(c), long term equity and liabilities are to be reduced before short term
liabilities.

16 (1) 30This paragraph applies for the purposes of paragraph 15(2) if—

(a) a member (“M”) of the relevant group has liabilities to an entity (“N”)
which is not a member of the group and N has assets which
correspond to those liabilities (“M’s liabilities”),

(b) M also has assets which correspond to liabilities which N has to M
35(“N’s liabilities”),

(c) there is in place an agreement between M and N which makes
provision for there to be a single net settlement of all M’s liabilities
(so far as covered by the provision) and all N’s liabilities (so far as
covered by the provision) if the netting event occurs, and

(d) 40the provision mentioned in paragraph (c) is legally effective and
enforceable.

(2) For the purposes of sub-paragraph (1)—

(a) “agreement” includes an agreement which forms part of a multi-
lateral agreement, arrangement or trading facility,

(b) 45references to assets of one party which correspond to liabilities of
another party are to amounts receivable by that first party which
correspond to amounts due from that other party,

(c) a liability which M has to N to which sub-paragraph (3) applies is to
be treated as a liability to which an asset of N corresponds, and

(d) “the netting event occurs” if the insolvency or bankruptcy of M or N
gives rise to the termination of any arrangements under which any
liability covered by the provision mentioned in sub-paragraph (1)(c)
arises.

(3) 5This sub-paragraph applies to a liability which M has to N if—

(a) as at the end of the chargeable period, the assets of the relevant group
include a financial asset in respect of an advance of cash made by M
to N,

(b) underlying that asset, as collateral, are securities which have been
10transferred by M to another person,

(c) the liability is a financial liability in respect of M’s obligation to
return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (1)(c) covers both the
financial asset mentioned in paragraph (a) and that financial liability.

15Section 556 of CTA 2009 (meaning of securities and similar securities)
applies for the purposes of this sub-paragraph as it applies for the purposes
of Chapter 10 of Part 6 of that Act.

(4) The amount of M’s net settlement liabilities is to be reduced (but not below
nil) by the amount of M’s net settlement assets.

(5) 20“M’s net settlement liabilities” means M’s liabilities so far as they—

(a) are covered by the provision mentioned in sub-paragraph (1)(c), and

(b) are not excluded liabilities.

(6) “M’s net settlement assets” means M’s assets so far as corresponding to N’s
net settlement liabilities.

(7) 25“N’s net settlement liabilities” means N’s liabilities so far as they are covered
by the provision mentioned in sub-paragraph (1)(c).

(8) If M’s net settlement liabilities exceed M’s net settlement assets, and a
proportion (A%) of those liabilities is long term liabilities and a proportion
(B%) of those liabilities is short term liabilities, under sub-paragraph (4)—

(a) 30the long term liabilities are reduced by A% of M’s net settlement
assets, and

(b) the short term liabilities are reduced by B% of those assets.

Chargeable equity and liabilities of a foreign banking group

17 (1) This paragraph applies if the relevant group is a foreign banking group.

(2) 35The amount of the chargeable equity and liabilities of the relevant group is
the sum of all type A, type B, type C and type D equity and liabilities.

(3) Type A equity and liabilities are the chargeable equity and liabilities of any
relevant UK sub-group.

(4) “UK sub-group” means a group of entities—

(a) 40which is a group for the purposes of those provisions of international
accounting standards or UK GAAP which relate to the preparation
of consolidated financial statements,

(b) which has as its parent or parent undertaking for the purposes of
those provisions an entity which is a UK resident entity, and

(c) the members of which for the purposes of those provisions are all
members of the relevant group.

(5) A UK sub-group is “relevant” if—

(a) consolidated financial statements for the chargeable period are
5prepared for it under international accounting standards or UK
GAAP, and

(b) its members are not members of any larger UK sub-group for which
such financial statements are prepared.

(6) To determine the amount of the chargeable equity and liabilities of a
10relevant UK sub-group—

(a) determine the amount of the sub-group’s equity and liabilities (other
than excluded equity and liabilities) as at the end of the chargeable
period,

(b) adjust that amount in accordance with paragraphs 18 and 43 (so far
15as applicable), and

(c) finally, reduce that amount (but not below nil) by—

(i) the amount of the sub-group’s high quality liquid assets as at
the end of that period, other than any asset which for the
purposes of an adjustment under paragraph (b) is an asset to
20which paragraph 18(12) applies, and

(ii) where sub-paragraph (8) applies, the amount determined
under that sub-paragraph.

(7) Sub-paragraph (8) applies where—

(a) as at the end of the chargeable period, the assets of the relevant UK
25sub-group include a financial asset in respect of an advance of cash
made by a member of that sub-group,

(b) that financial asset is not an asset which, for the purposes of an
adjustment under sub-paragraph (6)(b), is an asset to which
paragraph 18(12) applies, and

(c) 30underlying that asset, as collateral, is an item (“the collateral”) owned
by that member which would form part of the sub-group’s high
quality liquid assets as at the end of that period were the collateral,
rather than the financial asset, an asset of the sub-group.

(8) The amount within sub-paragraph (6)(c)(ii) is—

(a) 35the amount of the financial asset as at the end of that period or, if
lower, an amount equal to the fair value of the collateral as at that
time, or

(b) if this sub-paragraph applies in relation to more than one financial
asset, the total of the amounts determined under paragraph (a) in
40respect of each of those assets.

(9) For the purposes of this paragraph and paragraph 18, the assets, equity and
liabilities of a relevant UK sub-group are to be determined by reference to
the amounts recognised in its consolidated financial statements for the
chargeable period.

(10) 45Type B equity and liabilities are the chargeable equity and liabilities of any
UK resident entity which—

(a) is a member of the relevant group, but

(b) is not a member of a relevant UK sub-group.

(11) Type C equity and liabilities are the chargeable equity and liabilities of any
non-UK resident entity which—

(a) is a member of the relevant group, and

(b) is a member of a UK sub-group but is not a member of a relevant UK
5sub-group.

(12) To determine the amount of the chargeable equity and liabilities of an entity
covered by sub-paragraph (10) or (11)—

(a) determine the amount of the entity’s equity and liabilities (other than
excluded equity and liabilities) as at the end of the chargeable period,

(b) 10adjust that amount in accordance with paragraphs 18 and 43 (so far
as applicable), and

(c) finally, reduce that amount (but not below nil) by—

(i) the amount of the entity’s high quality liquid assets as at the
end of that period, other than any asset which for the
15purposes of an adjustment under paragraph (b) is an asset to
which paragraph 18(12) applies, and

(ii) where sub-paragraph (14) applies, the amount determined
under that sub-paragraph.

(13) Sub-paragraph (14) applies where—

(a) 20as at the end of the chargeable period, the assets of the entity include
a financial asset in respect of an advance of cash made by the entity,

(b) that financial asset is not an asset which, for the purposes of an
adjustment under sub-paragraph (12)(b), is an asset to which
paragraph 18(12) applies, and

(c) 25underlying that asset, as collateral, is an item (“the collateral”) owned
by that entity which would form part of the entity’s high quality
liquid assets as at the end of that period were the collateral, rather
than the financial asset, an asset of the entity.

(14) The amount within sub-paragraph (12)(c)(ii) is—

(a) 30the amount of the financial asset as at the end of the chargeable
period or, if lower, an amount equal to the fair value of the collateral
as at that time, or

(b) if this sub-paragraph applies in relation to more than one financial
asset, the total of the amounts determined under paragraph (a) in
35respect of each of those assets.

(15) For the purposes of this paragraph and paragraph 18 the assets, equity and
liabilities of an entity covered by sub-paragraph (10) or (11) are to be
determined by reference to—

(a) the amounts recognised in the entity’s financial statements for the
40chargeable period as prepared under international accounting
standards or UK GAAP, or

(b) if no such financial statements are prepared, the amounts which
would have been so recognised had such financial statements been
prepared—

(i) 45under international accounting standards, or

(ii) under UK GAAP if that is what the entity prepares its
financial statements under.

(16) In reducing the amount of any equity or liabilities under sub-paragraph
(6)(c) or (12)(c), long term equity and liabilities are to be reduced before short
term liabilities.

(17) Type D equity and liabilities are the UK allocated equity and liabilities (see
5paragraph 24) as at the end of the chargeable period of any relevant foreign
bank which—

(a) is a member of the relevant group, but

(b) is not a member of a UK sub-group.

(18) If—

(a) 10the amount of the equity and liabilities, as at the end of the
chargeable period, of a relevant UK sub-group or an entity covered
by sub-paragraph (10) or (11), or

(b) the amount of the UK allocated equity and liabilities, as at the end of
that period, of a relevant foreign bank covered by sub-paragraph
15(17),

is less than £50,000,000, the equity and liabilities, or UK allocated equity and
liabilities, may be ignored for the purposes of this paragraph and paragraph
18.

(19) But, the total amount of equity and liabilities which may be ignored under
20sub-paragraph (18) may not exceed £200,000,000.

18 (1) This paragraph applies for the purposes of paragraph 17(6) and (12).

(2) In this paragraph “relevant member” means—

(a) a relevant UK sub-group,

(b) a UK resident entity covered by paragraph 17(10), or

(c) 25a non-UK resident entity covered by paragraph 17(11).

(3) Sub-paragraph (4) applies if the members of a relevant UK sub-group are
also members of one or more larger UK sub-groups.

(4) Any equity of the relevant UK sub-group is to be left out so far as it would
have been eliminated under normal consolidation procedures had
30consolidated financial statements for the chargeable period been prepared
for the larger or largest UK sub-group—

(a) under international accounting standards, or

(b) under UK GAAP if the entity which is the parent or parent
undertaking for the larger or largest UK sub-group prepares its
35financial statements under UK GAAP.

(5) Sub-paragraph (6) applies if a relevant member within sub-paragraph (2)(b)
or (c) is a member of one or more UK sub-groups.

(6) Any equity of the relevant member is to be left out so far as it would have
been eliminated under normal consolidation procedures had consolidated
40financial statements for the chargeable period been prepared for the UK sub-
group or the largest UK sub-group—