Finance (No. 2) Bill (151)

15L (1) If the relevant group’s responsible member makes an election
under this paragraph (an “entity-by-entity election”) in relation to
a UK sub-group, the UK-based equity and liabilities of the UK sub-
group are to be determined in accordance with this paragraph.

(2) 5The amount of the UK-based equity and liabilities of the UK sub-
group as at the end of the chargeable period is the total amount
of—

(a) the adjusted equity and liabilities of each UK resident
entity, other than a designated FPE entity, which is a
10member of the UK sub-group, and

(b) the adjusted equity and liabilities of each designated FPE
entity which is a member of the UK sub-group (see Step 5
in paragraph 15Z1).

(3) To determine the “adjusted equity and liabilities” of a UK resident
15entity for the purposes of sub-paragraph (2)(a)—

(a) determine the amount of the entity’s equity and liabilities
in accordance with paragraph 15G(2), and

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

(4) An election made under this paragraph has effect in relation to the
20chargeable period during which the election is made and each
subsequent chargeable period (unless it is revoked under sub-
paragraph (6)(c)).

(5) But an election under this paragraph has no effect in relation to a
UK sub-group for a chargeable period if the purpose, or one of the
25main purposes, of making the election is to avoid or reduce a
charge or assessment to the bank levy.

(6) An election made under this paragraph in respect of the relevant
group—

(a) must be made in the form and manner specified by the
30Commissioners for Her Majesty’s Revenue and Customs,

(b) must contain such information and declarations as the
Commissioners may require, and

(c) may be revoked by the relevant group’s responsible
member at any time.

35Adjustments: general

15M For the purposes of paragraphs 15N to 15Z, references to a
“chargeable UK sub-group or entity” are references to—

(a) in a case to which paragraph 15H or 15L(3) applies, the UK
resident entity,

(b) 40in a case to which paragraph 15J applies, the UK sub-
group,

(c) in a case to which paragraph 15K applies, the residual UK
sub-group, or

(d) in a case to which paragraph 15Z1 applies, the designated
45FPE entity.

15N (1) To adjust the amount of the equity and liabilities of a chargeable
UK sub-group or entity for the purposes of paragraph 15H(2)(b),

15J(3)(b), 15K(4)(a), 15L(3)(b) or Step 3 in paragraph 15Z1, take the
following steps—

Step 1

Take the amount of the equity and liabilities of the chargeable UK
5sub-group or entity, other than excluded equity and liabilities, as
at the end of the chargeable period.

Step 2

Adjust that amount in accordance with paragraphs 15O to 15U (so
far as applicable).

10Step 3

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-
15paragraph (2)).

Step 4

(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
20of A.

Step 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
entities are also members of at least one larger
unconsolidated sub-group.

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

(a) 5the conditions in paragraph 15B(a) to (c) and (e) are met in
respect of the group, but

(b) the 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
10UK sub-group is to be left out so far as it would have been
eliminated under normal consolidation procedures, had
consolidated financial statements for the larger or largest
unconsolidated sub-group been prepared for the chargeable
period under international accounting standards.

15P (1) 15This 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
designated FPE entity), and

(b) 20it 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
consolidated financial statements for the unconsolidated sub-
25group, 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
by paragraph 4 (groups).

(2) 30Sub-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) it is a designated FPE entity and a member of a UK sub-
35group 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
international accounting standards, but disregarding from the
40consolidation 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
are to be left out—

(a) 45UK 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) UK connected liabilities to a relevant foreign bank which is
a member of the relevant group, and

(d) 5in 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) For the purposes of sub-paragraph (2)(a) and (d), liabilities to a UK
resident entity are “UK connected liabilities” except so far as the
10entity’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
paragraph 15Z1).

(4) For the purposes of sub-paragraph (2)(b), liabilities to a UK sub-
15group are “UK connected liabilities” except so far as the sub-
group’s assets corresponding to the liabilities are—

(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
20determined at Step 2 in paragraph 15Z1).

(5) For 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
25United Kingdom as determined at Step 2 in paragraph 24(1).

15S (1) Paragraph 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
30another entity (“N”) not within that sub-paragraph (“M’s
liabilities”),

(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
35within sub-paragraph (5),

(d) there 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
40provision 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) The reference in sub-paragraph (2) to a “single net settlement” is a
reference to a single net settlement of—

(a) 45all M’s liabilities, and liabilities of other entities within
sub-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) 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)(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,
10or

(b) a chargeable UK resident entity.

(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) 15if 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
on a trade in the United Kingdom as determined at Step 2
20in 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
another entity not within sub-paragraph (5) as collateral,
25but 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) in relation to M, if the insolvency or bankruptcy of
30M, 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
such a liability arises, or

(ii) 35in 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
termination of any arrangements under which
40such 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
Part 6 of that Act.

15T (1) 45Paragraph 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) M 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) 5that 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) 10The 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).

(4) 15But 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
event occurs,

20is 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
multi-lateral agreement, arrangement or trading facility,

(b) 25references 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) “a netting event occurs”—

(i) 30in 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)
arises, or

(ii) 35in 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
not below nil) by the amount of M’s net settlement assets.

(2) 40“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) are not excluded liabilities.

(3) 45“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,

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

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

(a) 5if 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
the assets corresponding to the liabilities of the relevant
foreign bank are to be disregarded for the purposes of sub-
10paragraph (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
included in the net settlement assets of more than one such
entity, and

(c) 15if 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
asset (or part) is not to be included in M’s net settlement
assets for the purposes of this paragraph.

(5) 20“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
15T(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
25and a proportion (B%) of those liabilities is short term liabilities,
under sub-paragraph (1)—

(a) the 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.

30Step 3 in paragraph 15N: loss absorbing instruments issued by overseas subsidiaries

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

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

(a) tier one capital equity and liabilities, and

(b) 35other instruments,

which satisfy a loss absorbing capacity or recapitalisation
requirement.

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

(a) 40equity and liabilities which are “tier one equity and
liabilities” within the meaning of paragraph 30, and

(b) equity 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) 45A “loss absorbing capacity or recapitalisation requirement” is a
requirement—

(a) that 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
5outside the United Kingdom, and

(b) that 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
10entity if Conditions A to C are met.

(2) Condition 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) 15qualifying loss absorbing instruments, or

(b) assets representing qualifying loss absorbing instruments.

(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
20subsidiary of a UK resident entity within sub-paragraph
(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) 25the entity is a member of the relevant group, and

(b) if 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”
30means—

(a) the 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) 35Condition C is that, as at the end of the chargeable period, the
liabilities 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
40equity and liabilities,

in 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
45are, or represent, qualifying loss absorbing instruments
within 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
5within 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
10amount 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
15amount 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).

(5) An asset (or part of an asset) of the relevant group member is to be
20disregarded 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
paragraph 15U(1) applies,

(b) in a case where this paragraph applies in relation to more
25than 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
chargeable UK sub-group or entity, or

(c) in a case where a relevant foreign bank is a member of the
30relevant 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) This paragraph makes provision about regulations under any
provision of paragraph 15V or 15W.

(2) 35The regulations may include different provision for different
purposes.

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

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

40Step 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
chargeable UK sub-group or entity include a financial asset
in respect of an advance of cash made—

(i) 45in the case of a UK sub-group, by a member of that
sub-group, or

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

(b) that 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) 5an asset which is taken into account in determining
the 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) 10in a case where the bank levy is charged as
provided 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
1527D(1) applies, and

(c) underlying 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
20high 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
entity and would form part of the entity’s high
25quality 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) the amount of the financial asset as at the end of the
30chargeable 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 respect of each of those assets.

35Designated 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.

Take Step 5 to determine the UK-based equity and liabilities, or (in
40a 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
entity’s equity and liabilities is to be treated as long term equity
45and liabilities and how much as short term liabilities for the
purposes of the determination at Step 3 in paragraph 6(2).

Step 1