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

Finance (No. 2) BillPage 120

(6) A loan relationship is “excluded” if—

(a) the designated FPE entity mentioned in sub-paragraph (4)
is the creditor,

(b) the debtor (“D”) is a UK resident bank, a building society
5or a relevant foreign bank—

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

(ii) whose activities include the relevant regulated
activity described in the provision mentioned in
paragraph 79(a),

(c) 10the money which is the subject of the transaction giving
rise to D’s debt is money borrowed by the designated FPE
entity mentioned in sub-paragraph (4) from another entity,
and

(d) in borrowing that money the designated FPE entity was
15acting as the agent or intermediary of D.

(7) Section 302(1) of CTA 2009 (definition of “loan relationship”)
applies for the purposes of sub-paragraphs (5) and (6) as it applies
for corporation tax purposes.

Netting: non-UK allocated equity and liabilities

15Z3 (1) 20Paragraph 15Z4 applies for the purposes of Steps 1 and 2 in
paragraph 15Z1 if—

(a) the designated FPE entity mentioned in paragraph 15Z1
(“E”) has liabilities to another entity which (in a case where
the bank levy is charged as provided for by paragraph 4
25(groups)) is not within sub-paragraph (5) (“E’s liabilities”),

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

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

(d) 30that provision is legally effective and enforceable.

(2) In sub-paragraph (1)(c), “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 E or N, if a netting event occurs.

(3) 35The reference in sub-paragraph (2) to a “single net settlement” is a
reference to a single net settlement of—

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

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

(4) 40But a provision for there to be single net settlement—

(a) at the option of E, 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 E, if a netting
event occurs,

45is not to be treated as a net settlement provision for the purposes
of sub-paragraph (1)(c).

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

Finance (No. 2) BillPage 121

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

(b) a chargeable UK resident entity, or

(c) a relevant foreign bank which is a member of the relevant
group.

(6) 5For 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 amounts due from N include securities
provided by E to N as collateral, but only where E
10recognises those securities in its balance sheet or statement
of financial position, and

(c) “a netting event occurs”—

(i) in relation to E, if the insolvency or bankruptcy of
E gives rise to the termination of any arrangements
15under which any liability covered by the provision
mentioned in sub-paragraph (1)(c) arises, 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.

(7) 20Section 556 of CTA 2009 (meaning of securities and similar
securities) applies for the purposes of sub-paragraph (6) as it
applies for the purposes of Chapter 10 of Part 6 of that Act.

15Z4 (1) In determining the amount of E’s assets at Step 1 in paragraph
15Z1, the amount of E’s net settlement assets is to be reduced (but
25not below nil) by the amount of E’s net settlement liabilities.

(2) In determining the amount of the foreign permanent
establishment’s assets at Step 2 in paragraph 15Z1

(a) the reduction in E’s assets under sub-paragraph (1) is to be
ignored, but

(b) 30the amount of the foreign permanent establishment’s net
settlement assets is to be reduced by Z%.

(3) For this purpose, “Z%” is the proportion by which E’s net
settlement assets are reduced under sub-paragraph (1).

(4) E’s “net settlement liabilities” are E’s liabilities so far as they—

(a) 35are covered by the provision mentioned in paragraph
15Z3(1)(c), and

(b) are not excluded liabilities.

(5) E’s “net settlement assets” are E’s assets so far as corresponding to
N’s net settlement liabilities.

(6) 40“N’s net settlement liabilities” means N’s liabilities so far as they
are covered by the provision mentioned in sub-paragraph
15Z3(1)(c).

(7) The permanent establishment’s “net settlement assets” are its
assets so far as they are part of E’s net settlement assets.

Finance (No. 2) BillPage 122

Equity and liabilities: threshold amount

15Z5 (1) If a relevant equity and liabilities amount is less than £50 million,
that amount may be ignored for the purposes of determining the
chargeable equity and liabilities of the relevant group under
5paragraph 15.

(2) But the total amount which may be ignored under sub-paragraph
(1) may not exceed £200 million.

(3) In sub-paragraph (1), “relevant equity and liabilities amount”
means—

(a) 10in the case of a chargeable UK resident entity, the amount
of the equity and liabilities, as at the end of the chargeable
period, of the entity,

(b) in the case of a UK sub-group to which paragraph 15J
applies, the amount of the equity and liabilities, as at the
15end of the chargeable period, of the UK sub-group,

(c) in the case of a UK sub-group to which paragraph 15K
applies, the total amount of—

(i) the equity and liabilities of the residual UK sub-
group, and

(ii) 20the equity and liabilities of each designated FPE
entity,

as at the end of the chargeable period,

(d) in the case of a UK sub-group to which paragraph 15L
applies, the total amount of the equity and liabilities, as at
25the end of the chargeable period, of each UK resident
entity (whether or not a designated FPE entity) which is a
member of the UK sub-group, or

(e) in the case of a relevant foreign bank which is a member of
the relevant group, the amount of the UK allocated equity
30and liabilities, as at the end of the chargeable period.”

Definition of “UK allocated equity and liabilities”

3 In paragraph 24(1) (steps to determine UK allocated equity and liabilities),
in Step 3, for “chargeable equity and liabilities” substitute “adjusted equity
and liabilities”.

4 (1) 35Paragraph 25 (UK allocated equity and liabilities: netting) is amended as
follows.

(2) In sub-paragraph (1), in the words before paragraph (a), after “applies”
insert “for the purposes of Steps 1 and 2 in paragraph 24(1)”.

(3) In sub-paragraph (1)(c), for the words from “makes provision” to “occurs”
40substitute “makes net settlement provision”.

(4) After sub-paragraph (1) insert—

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

(a) if a netting event occurs, or

(b) 45at the option of the bank or N, if a netting event occurs.

Finance (No. 2) BillPage 123

(1B) The reference in sub-paragraph (1A) to a “single net settlement” is
a reference to a single net settlement of—

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

(b) 5all N’s liabilities (so far as covered by that provision).

(1C) But a provision for there to be single net settlement—

(a) at the option of the bank, 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 the bank, if a
10netting event occurs,

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

(5) For sub-paragraph (2) substitute—

(2) If the UK allocated equity and liabilities of the bank are being
15determined for the purposes of paragraph 15(2)(b), this paragraph
does not apply if N is—

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

(b) a chargeable UK resident entity (see paragraph 15C), or

(c) another relevant foreign bank which is a member of the
20relevant group.”

(6) In sub-paragraph (3)(d), for ““the netting event occurs”” substitute ““a
netting event occurs””.

(7) Omit sub-paragraph (8).

(8) Omit sub-paragraph (13).

5 25In paragraph 26(4), for “paragraph 17(17) or 19(17)” substitute “paragraph
15(2)(b)”.

6 (1) Paragraph 27 (UK allocated equity and liabilities: determining the amount
of the foreign bank’s chargeable equity and liabilities) is amended in
accordance with this paragraph.

(2) 30In sub-paragraph (2)—

(a) in the words before paragraph (a), for “chargeable equity and
liabilities” substitute “adjusted equity and liabilities”,

(b) in paragraph (b), for “paragraphs 25(8)” substitute “paragraph
27D(1)”, and

(c) 35in paragraph (c), for sub-paragraph (i) (but not the “and” following
it) substitute—

(i) the amount of the entity’s high quality liquid assets
as at the end of that period, other than—

(a) any asset which for the purposes of an
40adjustment under paragraph (b) is an asset
to which paragraph 27D(1) applies;

(b) in a case where the bank levy is charged as
provided for by paragraph 4 (groups), any
asset to which paragraph 15U(1) applies for
45the purposes of adjusting the amount of the
equity and liabilities of another member of

Finance (No. 2) BillPage 124

the relevant group (see Step 2 in paragraph
15N(1)),”

(3) In sub-paragraph (3), for paragraph (b) (but not the “and” following it)
substitute—

(b) 5that financial asset is not an asset which—

(i) for the purposes of an adjustment under sub-
paragraph (2)(b), is an asset to which paragraph
27D(1) applies, or

(ii) in a case where the bank levy is charged as
10provided for by paragraph 4 (groups), is an asset to
which paragraph 15U(1) applies for the purposes
of adjusting the amount of the equity and liabilities
of another member of the relevant group under
Step 2 in paragraph 15N(1),”.

(4) 15In sub-paragraph (5), in the words before paragraph (a), for “paragraph
17(7) or 19(17)” substitute “paragraph 15(2)(b)”.

(5) In sub-paragraph (5), for paragraphs (a) and (b) substitute—

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

(b) 20UK connected liabilities to a UK sub-group of the relevant
group, and

(c) UK connected liabilities to any other relevant foreign bank
which is a member of the relevant group.”

(6) After sub-paragraph (5) insert—

(5A) 25In sub-paragraph (5), references to “UK connected liabilities” have
the same meaning as in paragraph 15R(2) (see paragraph 15R(3) to
(5)).”

7 After paragraph 27 insert—

27A (1) Paragraph 27D applies for the purposes of paragraph 27(2)(b) if—

(a) 30the bank levy is charged as provided for by paragraph 4
(groups),

(b) the relevant foreign bank (“B”) has liabilities to another
entity (“N”) which is not within sub-paragraph (5) (“B’s
liabilities”),

(c) 35B, 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,

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

(e) 40that 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) if a netting event occurs, or

(b) at the option of B 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—

Finance (No. 2) BillPage 125

(a) all B’s liabilities (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) 5at the option of B, 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 B, if a netting
event occurs,

is not to be treated as a net settlement provision for the purposes
10of 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,

(b) a chargeable UK resident entity, or

(c) another relevant foreign bank which is a member of the
15relevant group.

(6) 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) references to amounts due from N include securities
20provided by B, or another member of the relevant group,
to N as collateral, but only where B or that other member
recognises those securities in its balance sheet or statement
of financial position, and

(c) “a netting event occurs”—

(i) 25in relation to B, if the insolvency or bankruptcy of
B gives rise to the termination of any arrangements
under which any liability covered by the provision
mentioned in sub-paragraph (1)(d) arises, or

(ii) in relation to N, if the insolvency or bankruptcy of
30N gives rise to the termination of any arrangements
under which such a liability arises.

27B (1) Paragraph 27D also applies for the purposes of paragraph 27(2)(b)
if—

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

(b) the relevant foreign bank (“B”) has liabilities to another
entity (“B’s liabilities”),

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

(d) 40there is in place an agreement between B and N 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) 45if a netting event occurs, or

(b) at the option of B 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—

Finance (No. 2) BillPage 126

(a) all B’s liabilities (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) 5at the option of B, 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 B, if a netting
event occurs,

is not to be treated as a net settlement provision for the purposes
10of sub-paragraph (1)(d).

(5) 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) references to amounts due from N include securities
15provided by B to N as collateral, but only where B
recognises those securities in its balance sheet or statement
of financial position, and

(c) “a netting event occurs”—

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

(ii) in relation to N, if the insolvency or bankruptcy of
N gives rise to the termination of any arrangements
25under which such a liability arises.

27C Section 556 of CTA 2009 (meaning of securities and similar
securities) applies for the purposes of paragraphs 27A(6) and
27B(5) as it applies for the purposes of Chapter 10 of Part 6 of that
Act.

27D (1) 30The amount of B’s net settlement liabilities is to be reduced (but
not below nil) by the amount of B’s net settlement assets.

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

(a) are covered by the provision mentioned in paragraph
27A(1)(d) or 27B(1)(d), and

(b) 35are not excluded liabilities.

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

(a) B, or

(b) in a case within paragraph 27A, another member of the
relevant group,

40so far as corresponding to N’s net settlement liabilities.

(4) But, in a case within paragraph 27A

(a) if sub-paragraph (1) of this paragraph applies in relation to
more than one relevant foreign bank, no part of an asset
may be included in the net settlement assets of more than
45one of those relevant foreign banks, and

(b) if an asset, or part of an asset, is included for the purposes
of paragraph 15U in the net settlement assets of a member
of the relevant group, the asset (or part) is not to be

Finance (No. 2) BillPage 127

included in B’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 27A(1)(d) or
527B(1)(d).

(6) If B’s net settlement liabilities exceed B’s net settlement assets, and
a proportion (A%) of those liabilities is long term liabilities and a
proportion (C%) of those liabilities is short term liabilities, under
sub-paragraph (1)

(a) 10the long term liabilities are reduced by A% of B’s net
settlement assets, and

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

Consequential amendments

8 15In consequence of the preceding provisions of this Schedule, Schedule 19 to
FA 2011 is amended as follows.

9 In paragraph 30(2), at the beginning insert “For the purposes of this
paragraph,”.

10 In paragraph 40(1), for the words from “paragraphs 16” to the end substitute
20“paragraphs 15S to 15U, 15Z3, 15Z4, 25 and 27A to 27D.”

11 (1) Paragraph 47 is amended in accordance with this paragraph.

(2) In sub-paragraph (11), for the words from “paragraph 16(1)(c) and (d)” to the
end substitute “paragraph 15S(1)(d) and (e), 15T(1)(e) and (f), 15Z3(1)(c) and
(d), 25(1)(c) and (d), 27A(1)(d) and (e) or 27B(1)(d) and (e).”

(3) 25In sub-paragraph (14)—

(a) in the words before paragraph (a), after ““relevant member”” insert
“means”;

(b) for paragraphs (a) and (b) substitute—

(a) a chargeable UK resident entity which is a member
30of the relevant group;

(b) a UK sub-group of the relevant group;

(c) a relevant foreign bank which is a member of the
relevant group.”

12 In paragraph 53(4)—

(a) 35in paragraph (a), for “relevant UK banking sub-group” substitute
UK sub-group”,

(b) for paragraph (b) substitute—

(b) is a chargeable UK resident entity which is a
banking entity (see paragraph 15C(2)),”,

(c) 40omit paragraph (c), and

(d) in paragraph (d), for “covered by paragraph 19(17)” substitute
“which is a member of the relevant group”.

13 (1) Paragraph 54 is amended in accordance with this paragraph.

(2) In sub-paragraph (5)(c)—

Finance (No. 2) BillPage 128

(a) in sub-paragraph (i), for “chargeable UK-based equity and liabilities”
substitute “UK-based equity and liabilities or UK-allocated equity
and liabilities”;

(b) in sub-paragraph (ii)—

(i) 5for “chargeable UK-based equity and liabilities” substitute
“UK-based equity and liabilities or UK-allocated equity and
liabilities”;

(ii) for “relevant UK sub-group or a relevant UK banking sub-
group (as the case may be)” substitute “UK sub-group”.

(3) 10In sub-paragraph (6)—

(a) in the words before paragraph (a), after ““relevant member”” insert
“means”;

(b) for paragraphs (a) and (b) substitute—

(a) a chargeable UK resident entity which is a member
15of the relevant group;

(b) a UK sub-group of the relevant group;

(c) a relevant foreign bank which is a member of the
relevant group.”

14 (1) Paragraph 70 is amended in accordance with this paragraph.

(2) 20After the definition of “contract of insurance” insert—

  • ““designated FPE entity” is defined in paragraph 15F(2);”

(3) After the definition of “entity” insert—

  • ““entity-by-entity election” is defined in paragraph 15L(1);”

(4) After the definition of “long term” insert—

  • 25““non-UK allocated equity and liabilities” is defined in
    paragraph 15Z1;”.

(5) After the definition of “relevant regulated activity” insert—

  • ““residual UK-sub-group” is defined in paragraph 15K(2);”

(6) After the definition of “UK allocated equity and liabilities” insert—

  • 30““UK-based equity and liabilities”—

    (a)

    in relation to a UK resident entity, other than a
    designated FPE entity, is defined in paragraph 15H,

    (b)

    in relation to a designated FPE entity (other than a
    member of a UK sub-group) is defined in paragraphs
    3515I and 15Z1, and

    (c)

    in relation to a UK sub-group, is defined in
    paragraphs 15J, 15K and 15L;”

(7) In the definition of “UK sub-group” for “paragraph 17(4)” substitute
“paragraph 15B”.

(8) 40Omit the definitions of—

(a) “relevant UK banking sub-group”,

(b) “relevant UK sub-group”, and

(c) UK banking sub-group”.

15 In paragraph 77, after “subject to” insert “Step 7 in paragraph 15Z1 and”.

Finance (No. 2) BillPage 129

Part 2 Miscellaneous amendments

Introductory

16 Schedule 19 to FA 2011 (the bank levy) is amended as follows.

5Joint ventures

17 (1) In Part 5 (supplementary provision), omit paragraphs 43 and 44 (joint
ventures).

(2) In paragraph 27(2)(b) (determining the amount of a relevant foreign bank’s
chargeable equity and liabilities: adjustments), omit “and 44”.

10Joint and several liability

18 In paragraph 53 (joint and several liability), after sub-paragraph (2) insert—

(2A) But sub-paragraph (2) is subject to paragraph 53A (ring-fenced
bodies).”

19 After paragraph 53, insert—

53A (1) 15This paragraph applies where—

(a) an entity (the “ring-fenced entity”) which is a member of
the relevant group is—

(i) a ring-fenced body, or

(ii) a member of a ring-fenced body sub-group,

20or both, and

(b) the entity is not the relevant group’s responsible member.

(2) The ring-fenced entity is jointly and severally liable for the bank
levy liability of the relevant group’s responsible member under
paragraph 53(2) only so far as the liability is—

(a) 25attributable to the ring-fenced body sub-group of which
the ring-fenced entity is a member, or

(b) if the ring-fenced entity is not a member of a ring-fenced
body sub-group, attributable to that entity.

(3) For the purposes of sub-paragraph (2)

(a) 30the bank levy liability that is attributable to a ring-fenced
body sub-group is the amount of the bank levy that would
be charged for the chargeable period in relation to that sub-
group if it were “the relevant group” for the purposes of
this Part;

(b) 35the bank levy liability that is attributable to a ring-fenced
entity is the amount of the bank levy that would be
charged for the chargeable period in relation to that entity
if it were “the relevant entity” for the purposes of this Part.

(4) “Ring-fenced body” has the same meaning as in the Financial
40Services and Markets Act 2000 (see section 142A of that Act).