Finance (No. 2) Bill (HC Bill 134)

Finance (No. 2) BillPage 110

If paragraph 15X (loss absorbing instruments issued by overseas
subsidiaries) applies in relation to the chargeable UK sub-group or
entity, reduce the adjusted amount (but not below nil) by the
amount determined under that paragraph (subject to sub-
5paragraph (2)).

Step 4

Subject to sub-paragraph (2), reduce the amount given by Step 3
(but not below nil) by—

(a) the amount of the chargeable UK sub-group or entity’s
10high quality liquid assets as at the end of that period, other
than—
(i) any asset which, for the purposes of an adjustment
at Step 2, is an asset to which paragraph 15U(1)
applies;
(ii) 15any asset which is taken into account in
determining the amount of a reduction under
paragraph 15X for the purposes of Step 3;
(iii) in a case where the bank levy is charged as
provided for by paragraph 4 (groups) and a
20relevant foreign bank is a member of the relevant
group, any asset which for the purposes of Step 3 of
paragraph 24(1) is an asset to which paragraph
27D(1) applies; and

(b) if paragraph 15Z (high quality liquid assets) applies, the
25amount determined under that paragraph.

(2) Where any amount (“A”) within Step 3, or within paragraph (a) or
(b) of Step 4, is used to reduce short term liabilities, the amount of
the reduction is determined as if A were an amount equal to half
of A.

30Step 2 in paragraph 15N: equity and liability adjustments and netting

15O (1) This paragraph applies if—

(a) the bank levy is charged as provided for by paragraph 4
(groups), and

(b) the members of a UK sub-group which are UK resident
35entities are also members of at least one larger
unconsolidated sub-group.

(2) A group of entities is an “unconsolidated sub-group” if—

(a) the conditions in paragraph 15B(a) to (c) and (e) are met in
respect of the group, but

(b) 40the condition in paragraph 15B(d) (consolidated financial
statements) is not met in respect of the group.

(3) Any equity of the UK resident entities which are members of the
UK sub-group is to be left out so far as it would have been
eliminated under normal consolidation procedures, had
45consolidated financial statements for the larger or largest
unconsolidated sub-group been prepared for the chargeable
period under international accounting standards.

Finance (No. 2) BillPage 111

15P (1) This paragraph applies if the bank levy is charged as provided for
by paragraph 4 (groups).

(2) Sub-paragraph (3) applies in relation to an entity if—

(a) it is a chargeable UK resident entity (whether or not a
5designated FPE entity), and

(b) it is a member of at least one unconsolidated sub-group
(see paragraph 15O(2)).

(3) Any equity of the entity is to be left out so far as it would have been
eliminated under normal consolidation procedures, had
10consolidated financial statements for the unconsolidated sub-
group, or the largest unconsolidated sub-group of which the
entity is a member, been prepared for the chargeable period under
international accounting standards.

15Q (1) This paragraph applies if the bank levy is charged as provided for
15by paragraph 4 (groups).

(2) Sub-paragraph (3) applies in relation to a UK resident entity if—

(a) it is a member of a UK sub-group in respect of which an
entity-by-entity election has been made under paragraph
15L (whether or not it is a designated FPE entity), or

(b) 20it is a designated FPE entity and a member of a UK sub-
group in respect of which no entity-by-entity election has
been made.

(3) Any equity of the entity is to be left out so far as it would have been
eliminated under normal consolidation procedures under
25international accounting standards, but disregarding from the
consolidation any non-UK resident entities.

15R (1) This paragraph applies if the bank levy is charged as provided for
by paragraph 4 (groups).

(2) The following liabilities of a chargeable UK sub-group or entity
30are to be left out—

(a) UK connected liabilities to a chargeable UK resident entity
which is a member of the relevant group,

(b) UK connected liabilities to a UK sub-group of the relevant
group,

(c) 35UK connected liabilities to a relevant foreign bank which is
a member of the relevant group, and

(d) in the case of an entity to which paragraph 15Q applies, UK
connected liabilities of the entity to another UK resident
entity which is a member of the same UK sub-group.

(3) 40For the purposes of sub-paragraph (2)(a) and (d), liabilities to a UK
resident entity are “UK connected liabilities” except so far as the
entity’s assets corresponding to the liabilities are assets of a
foreign permanent establishment in respect of which an election
under paragraph 15D has been made (as determined at Step 2 in
45paragraph 15Z1).

(4) For the purposes of sub-paragraph (2)(b), liabilities to a UK sub-
group are “UK connected liabilities” except so far as the sub-
group’s assets corresponding to the liabilities are—

Finance (No. 2) BillPage 112

(a) assets of a non-UK resident entity, or

(b) assets of a foreign permanent establishment in respect of
which an election under paragraph 15D has been made (as
determined at Step 2 in paragraph 15Z1).

(5) 5For the purposes of sub-paragraph (2)(c), liabilities to a relevant
foreign bank are “UK connected liabilities” so far 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).

15S (1) 10Paragraph 15U applies if—

(a) the bank levy is charged as provided for by paragraph 4
(groups),

(b) an entity (“M”) within sub-paragraph (5) has liabilities to
another entity (“N”) not within that sub-paragraph (“M’s
15liabilities”),

(c) M, or another member of the relevant group, recognises, as
assets, amounts (“N’s liabilities”) that are due to any
member of the relevant group from N or another entity not
within sub-paragraph (5),

(d) 20there is in place an agreement which makes net settlement
provision, and

(e) that provision is legally effective and enforceable.

(2) In sub-paragraph (1)(d), “net settlement provision” means
provision for there to be a single net settlement—

(a) 25if a netting event occurs, or

(b) at the option of M or N, if a netting event occurs.

(3) The reference in sub-paragraph (2) to a “single net settlement” is a
reference to a single net settlement of—

(a) all M’s liabilities, and liabilities of other entities within
30sub-paragraph (5), to N or another entity which is not
within that sub-paragraph (so far as covered by the
provision mentioned in sub-paragraph (1)(d)), and

(b) all N’s liabilities (so far as covered by that provision).

(4) But a provision for there to be single net settlement—

(a) 35at the option of M, but not at the option of N, if a netting
event occurs, or

(b) at the option of N, but not at the option of M, if a netting
event occurs,

is not to be treated as a net settlement provision for the purposes
40of sub-paragraph (1)(d).

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

(a) a UK resident entity which is a member of a UK sub-group,
or

(b) a chargeable UK resident entity.

(6) 45For the purposes of sub-paragraph (1)

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

Finance (No. 2) BillPage 113

(b) if N is a relevant foreign bank which is a member of the
relevant group, liabilities of M to N are to be ignored so far
as N recognises assets in respect of those liabilities as assets
of the permanent establishment through which N carries
5on a trade in the United Kingdom as determined at Step 2
in paragraph 24(1),

(c) references to amounts due from N or another entity not
within sub-paragraph (5) include securities provided by
M, or another member of the relevant group, to N or
10another entity not within sub-paragraph (5) as collateral,
but only where M or that other member recognises those
securities in its balance sheet or statement of financial
position, and

(d) “a netting event occurs”—

(i) 15in relation to M, if the insolvency or bankruptcy of
M, or another entity within sub-paragraph (5)
which has a liability covered by the provision
mentioned in sub-paragraph (1)(d), gives rise to the
termination of any arrangements under which
20such a liability arises, or

(ii) in relation to N, if the insolvency or bankruptcy of
N, or another entity not within sub-paragraph (5)
which has a liability covered by the provision
mentioned in sub-paragraph (1)(d), gives rise to the
25termination of any arrangements under which
such a liability arises.

(7) Section 556 of CTA 2009 (meaning of securities and similar
securities) applies for the purposes of sub-paragraph (6) and
paragraph 15T(5) as it applies for the purposes of Chapter 10 of
30Part 6 of that Act.

15T (1) Paragraph 15U also applies if—

(a) the bank levy is charged as provided for by paragraph 5
(entities which are not members of groups),

(b) the relevant entity (“M”) is a UK resident entity,

(c) 35M has liabilities to another entity (“M’s liabilities”),

(d) M recognises, as assets, amounts due from that other entity
(“N”) to M (“N’s liabilities”),

(e) there is in place an agreement between M and N which
makes net settlement provision, and

(f) 40that provision is legally effective and enforceable.

(2) In sub-paragraph (1)(e), “net settlement provision” means
provision for there to be a single net settlement—

(a) if a netting event occurs, or

(b) at the option of M or N, if a netting event occurs.

(3) 45The reference in sub-paragraph (2) to a “single net settlement” is a
reference to a single net settlement of—

(a) all M’s liabilities (so far as covered by the provision
mentioned in sub-paragraph (1)(e)), and

(b) all N’s liabilities (so far as covered by that provision).

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(4) But a provision for there to be single net settlement—

(a) at the option of M, but not at the option of N, if a netting
event occurs, or

(b) at the option of N, but not at the option of M, if a netting
5event occurs,

is not to be treated as a net settlement provision for the purposes
of sub-paragraph (1)(e).

(5) For the purposes of sub-paragraph (1)

(a) “agreement” includes an agreement which forms part of a
10multi-lateral agreement, arrangement or trading facility,

(b) references to amounts due from N include securities
provided by M to N as collateral, but only where M
recognises those securities in its balance sheet or statement
of financial position, and

(c) 15“a netting event occurs”—

(i) in relation to M, if the insolvency or bankruptcy of
M gives rise to the termination of any
arrangements under which any liability covered by
the provision mentioned in sub-paragraph (1)(e)
20arises, or

(ii) in relation to N, if the insolvency or bankruptcy of
N gives rise to the termination of any arrangements
under which such a liability arises.

15U (1) The amount of M’s net settlement liabilities is to be reduced (but
25not below nil) by the amount of M’s net settlement assets.

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

(a) are covered by the provision mentioned in paragraph
15S(1)(d) or 15T(1)(e), and

(b) 30are not excluded liabilities.

(3) “M’s net settlement assets” means the assets of—

(a) M, or

(b) in a case within paragraph 15S, another member of the
relevant group,

35so far as corresponding to N’s net settlement liabilities.

(4) But, in a case within paragraph 15S

(a) if N’s net settlement liabilities include liabilities of a
relevant foreign bank which is a member of the relevant
group, X% (as determined at Step 2 in paragraph 24(1)) of
40the assets corresponding to the liabilities of the relevant
foreign bank are to be disregarded for the purposes of sub-
paragraph (3), and

(b) if sub-paragraph (1) applies in relation to more than one
entity within paragraph 15S(5), no part of an asset may be
45included in the net settlement assets of more than one such
entity, and

(c) if an asset, or part of an asset, is included for the purposes
of paragraph 27D in the net settlement assets of a relevant
foreign bank which is a member of the relevant group, the

Finance (No. 2) BillPage 115

asset (or part) is not to be included in M’s net settlement
assets for the purposes of this paragraph.

(5) “N’s net settlement liabilities” means N’s liabilities so far as they
are covered by the provision mentioned in paragraph 15S(1)(d) or
515T(1)(e).

(6) 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 (1)

(a) 10the 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.

Step 3 in paragraph 15N: loss absorbing instruments issued by overseas subsidiaries

15V (1) This paragraph applies for the purposes of paragraphs 15W and
1515X.

(2) References to “loss absorbing instruments” are references to—

(a) tier one capital equity and liabilities, and

(b) other instruments,

which satisfy a loss absorbing capacity or recapitalisation
20requirement.

(3) In this paragraph and paragraphs 15W and 15X, “tier one capital
equity and liabilities” means—

(a) equity and liabilities which are “tier one equity and
liabilities” within the meaning of paragraph 30, and

(b) 25equity and liabilities that are (or are of a description)
specified, or meet such conditions as may be specified, in
regulations made by the Treasury.

(4) A “loss absorbing capacity or recapitalisation requirement” is a
requirement—

(a) 30that is imposed, in relation to tier one capital equity and
liabilities or other instruments issued by an entity, by an
authority in the exercise of its regulatory functions under
the law of the United Kingdom or of a country or territory
outside the United Kingdom, and

(b) 35that is (or is of a description) specified, or meets such
conditions as may be specified, in regulations made by the
Treasury.

15W (1) Paragraph 15X applies in relation to a chargeable UK sub-group or
entity if Conditions A to C are met.

(2) 40Condition A is that the bank levy is charged as provided for by
paragraph 4 (groups).

(3) Condition B is that, as at the end of the chargeable period, the
assets of a relevant group member include—

(a) qualifying loss absorbing instruments, or

(b) 45assets representing qualifying loss absorbing instruments.

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(4) A loss absorbing instrument is “qualifying” for the purposes of
this paragraph and paragraph 15X if—

(a) it is issued by a non-UK resident entity which is a
subsidiary of a UK resident entity within sub-paragraph
5(5), and

(b) such other conditions as may be specified in regulations
made by the Treasury are met in respect of the instrument.

(5) A UK resident entity is within this sub-paragraph if—

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

(b) 10if the relevant group is a relevant non-banking group, the
entity is a UK resident bank or a subsidiary of a UK
resident bank.

(6) For the purposes of Condition B, “relevant group member”
means—

(a) 15the chargeable UK sub-group or entity,

(b) another UK sub-group of the relevant group, or

(c) a chargeable UK resident entity which is a member of the
relevant group.

(7) Condition C is that, as at the end of the chargeable period, the
20liabilities of the chargeable UK sub-group or entity include—

(a) tier one capital equity and liabilities (other than tier one
capital equity and liabilities excluded by paragraph 30), or

(b) loss absorbing instruments, other than tier one capital
equity and liabilities,

25in respect of which such conditions as may be specified in
regulations made by the Treasury are met.

15X (1) The amount within Step 3 in paragraph 15N(1) is the total of—

(a) the amount of the relevant group member’s assets which
are, or represent, qualifying loss absorbing instruments
30within paragraph 15V(2)(a) as at the end of the chargeable
period, so far as that amount does not exceed the liabilities
amount within sub-paragraph (3), and

(b) the amount of the relevant group member’s assets which
are, or represent, qualifying loss absorbing instruments
35within paragraph 15V(2)(b) as at the end of the chargeable
period, so far as that amount does not exceed the liabilities
amount within sub-paragraph (4).

(2) Sub-paragraph (1) is subject to sub-paragraph (5).

(3) The “liabilities amount” within this sub-paragraph is the total
40amount of the chargeable UK sub-group or entity’s equity and
liabilities, adjusted in accordance with Steps 1 and 2 in paragraph
15N(1), that are tier one capital equity and liabilities within
paragraph 15W(7)(a).

(4) The “liabilities amount” within this sub-paragraph is the total
45amount of the chargeable UK sub-group or entity’s equity and
liabilities, adjusted in accordance with Steps 1 and 2 in paragraph
15N(1), that are loss absorbing instruments within paragraph
15W(7)(b).

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(5) An asset (or part of an asset) of the relevant group member is to be
disregarded for the purposes of sub-paragraph (1) if—

(a) for the purposes of an adjustment at Step 2 in paragraph
15N(1), it is an asset (or part of an asset) to which
5paragraph 15U(1) applies,

(b) in a case where this paragraph applies in relation to more
than one chargeable UK sub-group or entity, the asset (or
part) is taken into account in determining the amount
within Step 3 in paragraph 15N(1) in relation to another
10chargeable UK sub-group or entity, or

(c) in a case where a relevant foreign bank is a member of the
relevant group, it is an asset (or part) to which paragraph
27D(1) applies for the purposes of Step 3 of paragraph
24(1).

15Y (1) 15This paragraph makes provision about regulations under any
provision of paragraph 15V or 15W.

(2) The regulations may include different provision for different
purposes.

(3) The regulations are to be made by statutory instrument.

(4) 20A statutory instrument containing the regulations is subject to
annulment in pursuance of a resolution of the House of Commons.

Step 4 in paragraph 15N: high quality liquid assets

15Z (1) This paragraph applies where—

(a) as at the end of the chargeable period, the assets of the
25chargeable UK sub-group or entity include a financial asset
in respect of an advance of cash made—

(i) in the case of a UK sub-group, by a member of that
sub-group, or

(ii) in any other case, by the entity,

(b) 30that financial asset is not—

(i) an asset which, for the purposes of an adjustment
at Step 2 in paragraph 15N, is an asset to which
paragraph 15U(1) applies,

(ii) an asset which is taken into account in determining
35the amount of a reduction under paragraph 15X for
the purposes of Step 3 in paragraph 15N in the
application of those paragraphs in relation to any
member of the relevant group, or

(iii) in a case where the bank levy is charged as
40provided for by paragraph 4 (groups) and a
relevant foreign bank is a member of the relevant
group, an asset which for the purposes of Step 3 of
paragraph 24(1) is an asset to which paragraph
27D(1) applies, and

(c) 45underlying that asset, as collateral, is an item (“the
collateral”) which—

(i) in a case within paragraph (a)(i), is owned by the
member and would form part of the sub-group’s

Finance (No. 2) BillPage 118

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;

(ii) in a case within paragraph (a)(ii), is owned by the
5entity and 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.

(2) The amount within paragraph (b) of Step 4 in paragraph 15N is—

(a) 10the 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
15paragraph (a) in respect of each of those assets.

Designated FPE entities: non-UK allocated equity and liabilities etc

15Z1 Take Steps 1 to 4 to determine the non-UK allocated equity and
liabilities attributable to a foreign permanent establishment of a
designated FPE entity as at the end of the chargeable period.

20Take Step 5 to determine the UK-based equity and liabilities, or (in
a case to which paragraph 15K or 15L applies) the adjusted equity
and liabilities, of a designated FPE entity as at the end of the
chargeable period.

Take Steps 6 and 7 to determine how much of the designated FPE
25entity’s equity and liabilities is to be treated as long term equity
and liabilities and how much as short term liabilities for the
purposes of the determination at Step 3 in paragraph 6(2).

Step 1

In accordance with paragraph 15G(2), determine the amount (“A”)
30of the assets of the designated FPE entity as at the end of the
chargeable period (subject to any adjustment under paragraph
15Z4(1)).

Step 2

In accordance with paragraph 15Z2, determine the amount (“B”)
35of the assets, as at the end of the chargeable period, of the foreign
permanent establishment (subject to any adjustment under
paragraph 15Z4(2)).

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

Step 3

40Determine the amount (“C”) that would, if an election under
paragraph 15D or 15E had not been made, be the amount of the
UK-based equity and liabilities (or the adjusted equity and
liabilities) of the entity, by—

(a) determining the amount of the equity and liabilities of

Finance (No. 2) BillPage 119

the entity, as at the end of the chargeable period,
under paragraph 15G(2), and

(b) adjusting that amount in accordance with paragraph
15N.

5Step 4

The amount of the non-UK allocated equity and liabilities
attributable to the foreign permanent establishment is X% of C.

Step 5

To determine the amount (“Z”) of the UK-based equity and
10liabilities, or (in a case to which paragraph 15K or 15L applies) the
adjusted equity and liabilities, of the designated FPE entity—

(a) determine, in accordance with Steps 1 to 4, the
amount of the non-UK allocated equity and liabilities
attributable to each of the entity’s foreign permanent
15establishments in respect of which an election has
been made under paragraph 15D or 15E, and

(b) reduce C by the total of those amounts.

Step 6

Determine the proportion (“Y%”) of C which is long term equity
20and liabilities.

Step 7

15Z2 (1) This paragraph applies for the purposes of Step 2 in paragraph
2515Z1.

(2) The assets of the foreign permanent establishment are those which
it would have were it a distinct and separate enterprise which—

(a) engaged in the same or similar activities under the same or
similar conditions, and

(b) 30dealt wholly independently with the designated FPE
entity.

(3) For the purposes of paragraph 15Z1 and this paragraph, any
relevant provisions of Chapter 3A of Part 2 of CTA 2009 (UK
resident companies: profits of foreign permanent establishments)
35are to be applied as they would be applied in determining profits
attributable to the foreign permanent establishment for
corporation tax purposes.

(4) But in determining the non-UK allocated equity and liabilities
attributable to a foreign permanent establishment of a designated
40FPE entity which is a member of the relevant group, any assets
within sub-paragraph (5) are to be left out.

(5) The assets within this sub-paragraph are any assets of the foreign
permanent establishment (as otherwise determined under this
paragraph) representing an excluded loan relationship.