Finance (No. 3) Bill (HC Bill 200)

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

(a) as 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
5adjustment under sub-paragraph (12)(b), is an asset to which
paragraph 20(12) applies, and

(c) underlying 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
10than the financial asset, an asset of the entity.

(14) The amount within sub-paragraph (12)(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.

(15) For the purposes of this paragraph and paragraph 20 the assets, equity and
liabilities of an entity covered by sub-paragraph (10) or (11) are to be
20determined by reference to—

(a) the amounts recognised in the entity’s 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
25would have been so recognised had such financial statements been
prepared—

(i) under international accounting standards, or

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

(16) 30In 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
paragraph 24) as at the end of the chargeable period of any relevant foreign
35bank which—

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

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

(18) If—

(a) the amount of the equity and liabilities, as at the end of the
40chargeable period, of a relevant UK banking 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
(17),

45is 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
20

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

20 (1) This paragraph applies for the purposes of paragraph 19(6) and (12).

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

(a) a relevant UK banking sub-group,

(b) a UK resident bank covered by paragraph 19(10), or

(c) 5an entity covered by paragraph 19(11).

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

(4) Any equity of the relevant UK banking sub-group is to be left out so far as it
would have been eliminated under normal consolidation procedures had
10consolidated financial statements for the chargeable period been prepared
for the larger or largest UK banking 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 banking sub-group prepares
15its financial 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 banking 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
20financial statements for the chargeable period been prepared for the UK
banking sub-group or the largest UK banking sub-group—

(a) under international accounting standards, or

(b) under UK GAAP if the entity which is the parent or parent
undertaking for the UK banking sub-group or the largest UK
25banking sub-group prepares its financial statements under UK
GAAP.

(7) The following liabilities of a relevant member are to be left out—

(a) liabilities to other relevant members, and

(b) liabilities to a relevant foreign bank covered by paragraph 19(17) so
30far as the bank’s assets corresponding to the liabilities are assets of
the permanent establishment through which the bank carries on a
trade in the United Kingdom as determined at Step 2 in paragraph
24(1).

(8) Sub-paragraph (12) applies if—

(a) 35an entity (“M”) within sub-paragraph (9) has liabilities to another
entity (“N”) not within that sub-paragraph, 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
(“N’s liabilities”),

(c) 40there 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) the provision mentioned in paragraph (c) is legally effective and
45enforceable.

(9) An entity is within this sub-paragraph if it is—

(a) a member of a relevant UK banking sub-group, or

(b) a relevant member within sub-paragraph (2)(b) or (c).

(10) For the purposes of sub-paragraph (8)—

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

(b) 5if N is a relevant foreign bank covered by paragraph 19(17), liabilities
of M to N are to be ignored so far as N’s assets corresponding to
those liabilities are assets of the permanent establishment through
which N carries on a trade in the United Kingdom as determined at
Step 2 in paragraph 24(1),

(c) 10references 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,

(d) a liability which M has to N to which sub-paragraph (11) applies is
to be treated as a liability to which an asset of N corresponds, and

(e) 15“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 (8)(c)
arises.

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

(a) 20as at the end of the chargeable period, the assets of M 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
transferred by M to another person,

(c) the liability is a financial liability in respect of M’s obligation to
25return the securities or similar securities to N, and

(d) the provision mentioned in sub-paragraph (8)(c) covers both the
financial asset mentioned in paragraph (a) and that financial liability.

Section 556 of CTA 2009 (meaning of securities and similar securities)
applies for the purposes of this sub-paragraph as it applies for the purposes
30of Chapter 10 of Part 6 of that Act.

(12) 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.

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

(a) are covered by the provision mentioned in sub-paragraph (8)(c), and

(b) 35are not excluded liabilities.

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

(15) “N’s net settlement liabilities” means N’s liabilities so far as they are covered
by the provision mentioned in sub-paragraph (8)(c).

(16) 40If 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 (12)—

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

(b) 45the short term liabilities are reduced by B% of those assets.

Chargeable equity and liabilities of UK resident banks and building societies which are not
members of groups

21 (1) This paragraph applies where the bank levy is charged as provided for by
paragraph 5 and the relevant entity is a UK resident bank or a building
5society.

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

(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 22 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 22(4) applies, and

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

(3) Sub-paragraph (4) applies where—

(a) 20as at the end of the chargeable period, the assets of the relevant 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 (2)(b), is an asset to which
25paragraph 22(4) applies, and

(c) underlying that asset, as collateral, is an item (“the collateral”) owned
by the 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.

(4) 30The 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) if this sub-paragraph applies in relation to more than one financial
35asset, 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 22 the relevant entity’s
assets, equity and liabilities are to be determined by reference to the
amounts recognised in the entity’s financial statements for the chargeable
40period as prepared under international accounting standards or UK GAAP.

(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.

22 (1) This paragraph applies for the purposes of paragraph 21(2) if—

(a) 45the relevant entity has liabilities to another entity (“N”) and N has
assets which correspond to those liabilities (“the relevant entity’s
liabilities”),

(b) the relevant entity also has assets which correspond to liabilities
which N has to the relevant entity (“N’s liabilities”),

(c) there is in place an agreement between the relevant entity and N
which makes provision for there to be a single net settlement of all
5the relevant entity’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) the provision mentioned in paragraph (c) is legally effective and
enforceable.

(2) 10For the purposes of sub-paragraph (1)—

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

(b) references to assets of one party which correspond to liabilities of
another party are to amounts receivable by that first party which
15correspond to amounts due from that other party,

(c) a liability which the relevant entity 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 the
20relevant entity or N gives rise to the termination of any arrangements
under which any liability covered by the provisions mentioned in
sub-paragraph (1)(c) arises.

(3) This sub-paragraph applies to a liability which the relevant entity has to N
if—

(a) 25as at the end of the chargeable period, the assets of the relevant entity
include a financial asset in respect of an advance of cash made by the
relevant entity to N,

(b) underlying that asset, as collateral, are securities which have been
transferred by the relevant entity to another person,

(c) 30the liability is a financial liability in respect of the relevant entity’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.

Section 556 of CTA 2009 (meaning of securities and similar securities)
35applies 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 the relevant entity’s net settlement liabilities is to be reduced
(but not below nil) by the amount of the relevant entity’s net settlement
assets.

(5) 40The relevant entity’s “net settlement liabilities” are the relevant entity’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) The relevant entity’s “net settlement assets” are its assets so far as
45corresponding to N’s net settlement liabilities.

(7) “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 the relevant entity’s net settlement liabilities exceed the entity’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) 5the long term liabilities are reduced by A% of the entity’s net
settlement assets, and

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

Chargeable equity and liabilities of relevant foreign banks which are not members of groups

23 (1) This paragraph applies where the bank levy is charged as provided for by
10paragraph 5 and the relevant entity is a relevant foreign bank.

(2) The chargeable equity and liabilities of the relevant entity is the amount of
its UK allocated equity and liabilities (see paragraph 24) as at the end of the
chargeable period.

Definition of “UK allocated equity and liabilities”

24 (1) 15Take Steps 1 to 4 to determine the amount of the UK allocated equity and
liabilities of a relevant foreign bank as at the end of the chargeable period.

Take Steps 5 and 6 to determine how much of that amount is to be treated as
long term equity and liabilities and how much as short term liabilities for the
purposes of Step 3 in paragraph 6(2).

20Step 1

Determine the amount (“A”) of the bank’s assets as at the end of the
chargeable period (subject to any adjustment under paragraph 25(5)).

Step 2

In accordance with paragraph 26, determine the amount (“B”) of the assets,
25as at the end of the chargeable period, of the permanent establishment
through which the bank carries on a trade in the United Kingdom (subject to
any adjustment under paragraph 25(6)).

The proportion which B is of A is “X%”.

Step 3

30In accordance with paragraph 27, determine the amount (“C”) of the bank’s
chargeable equity and liabilities.

Step 4

The amount of the UK allocated equity and liabilities is X% of C.

Step 5

35Determine the proportion (“Y%”) of C which is long term equity and
liabilities.

Step 6

For the purposes of Step 3 in paragraph 6(2), treat Y% of the amount of the
UK allocated equity and liabilities as long term equity and liabilities and the
40rest as short term liabilities.

(2) For the purposes of this paragraph and paragraphs 25 to 27, assets, equity
and liabilities of a relevant foreign bank or the permanent establishment

through which it carries on a trade in the United Kingdom are to be
determined by reference to—

(a) the amounts recognised in the bank’s financial statements for the
chargeable period as prepared under international accounting
5standards 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) under international accounting standards, or

(ii) 10under UK GAAP if that is what the bank prepares its
financial statements under.

25 (1) This paragraph applies if—

(a) the relevant foreign bank has liabilities to another entity (“N”)
(subject to sub-paragraph (2)), and N has assets which correspond to
15those liabilities (“the bank’s liabilities”),

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

(c) there is in place an agreement between the bank and N which makes
provision for there to be a single net settlement of all the bank’s
20liabilities (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) the provision mentioned in paragraph (c) is legally effective and
enforceable.

(2) If the UK allocated equity and liabilities of the bank are being determined for
25the purposes of paragraph 17(17) or 19(17), this paragraph does not apply if
N is—

(a) an entity within paragraph 18(9) or 20(9) (as the case may be), or

(b) another relevant foreign bank covered by paragraph 17(17) or 19(17)
(as the case may be).

(3) 30For the purposes of sub-paragraph (1)—

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

(b) references to assets of one party which correspond to liabilities of
another party are to amounts receivable by that first party which
35correspond to amounts due from that other party,

(c) a liability which the relevant foreign bank has to N to which sub-
paragraph (4) 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 the
40relevant foreign bank 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.

(4) This sub-paragraph applies to a liability which the relevant foreign bank has
to N if—

(a) 45as at the end of the chargeable period, the assets of the relevant
foreign bank include a financial asset in respect of an advance of cash
made by the relevant foreign bank to N,

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

(c) the liability is a financial liability in respect of the bank’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.

5Section 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.

(5) In determining the amount of the bank’s assets at Step 1 in paragraph 24(1),
the amount of the bank’s net settlement assets is to be reduced (but not
10below nil) by the amount of the bank’s net settlement liabilities.

(6) In determining the amount of the permanent establishment’s assets at Step
2 in paragraph 24(1)—