Finance (No. 2) Bill (151)

In accordance with paragraph 15G(2), determine the amount (“A”)
of the assets of the designated FPE entity as at the end of the
chargeable period (subject to any adjustment under paragraph
515Z4(1)).

Step 2

In accordance with paragraph 15Z2, determine the amount (“B”)
of the assets, as at the end of the chargeable period, of the foreign
permanent establishment (subject to any adjustment under
10paragraph 15Z4(2)).

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

Step 3

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

“determining the amount of the equity and liabilities of
the entity, as at the end of the chargeable period,
under paragraph 15G(2), and

(b) 20adjusting that amount in accordance with paragraph
15N.”

Step 4

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

25Step 5

To determine the amount (“Z”) of the UK-based equity and
liabilities, 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
30amount of the non-UK allocated equity and liabilities
attributable to each of the entity’s foreign permanent
establishments in respect of which an election has
been made under paragraph 15D or 15E, and

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

35Step 6

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

Step 7

15Z2 (1) This paragraph applies for the purposes of Step 2 in paragraph
4015Z1.

(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) dealt wholly independently with the designated FPE
entity.

(3) 5For 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)
are to be applied as they would be applied in determining profits
attributable to the foreign permanent establishment for
10corporation tax purposes.

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

(5) 15The assets within this sub-paragraph are any assets of the foreign
permanent establishment (as otherwise determined under this
paragraph) representing an excluded loan relationship.

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

(a) the designated FPE entity mentioned in sub-paragraph (4)
20is the creditor,

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

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

(ii) whose activities include the relevant regulated
25activity described in the provision mentioned in
paragraph 79(a),

(c) the 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,
30and

(d) in borrowing that money the designated FPE entity was
acting 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
35for corporation tax purposes.

Netting: non-UK allocated equity and liabilities

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

(a) the designated FPE entity mentioned in paragraph 15Z1
40(“E”) has liabilities to another entity which (in a case where
the bank levy is charged as provided for by paragraph 4
(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) 45there is in place an agreement between E and N which
makes net settlement provision, and

(d) that 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) 5The 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) 10But 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,

15is 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—

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

(b) a chargeable UK resident entity, or

(c) 20a relevant foreign bank which is a member of the relevant
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) 25references to amounts due from N include securities
provided by E to N as collateral, but only where E
recognises those securities in its balance sheet or statement
of financial position, and

(c) “a netting event occurs”—

(i) 30in relation to E, if the insolvency or bankruptcy of
E gives rise to the termination of any arrangements
under 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
35N gives rise to the termination 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) as it
applies for the purposes of Chapter 10 of Part 6 of that Act.

15Z4 (1) 40In 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
not 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) 45the reduction in E’s assets under sub-paragraph (1) is to be
ignored, but

(b) the 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) are covered by the provision mentioned in paragraph
515Z3(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) “N’s net settlement liabilities” means N’s liabilities so far as they
10are 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.

Equity and liabilities: threshold amount

15Z5 (1) 15If 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
paragraph 15.

(2) But the total amount which may be ignored under sub-paragraph
20(1) may not exceed £200 million.

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

(a) in the case of a chargeable UK resident entity, the amount
of the equity and liabilities, as at the end of the chargeable
25period, 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
end of the chargeable period, of the UK sub-group,

(c) in the case of a UK sub-group to which paragraph 15K
30applies, the total amount of—

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

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

35as 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
the end of the chargeable period, of each UK resident
entity (whether or not a designated FPE entity) which is a
40member 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
and 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) 5Paragraph 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”
10substitute “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) 15at the option of the bank or N, if a netting event occurs.

(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) 20all 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
25netting 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
30determined 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
35relevant 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 40In 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) In sub-paragraph (2)—

(a) 5in 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) in paragraph (c), for sub-paragraph (i) (but not the “and” following
10it) 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
adjustment under paragraph (b) is an asset
15to 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
the purposes of adjusting the amount of the
20equity and liabilities of another member of
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) 25that 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
30provided 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) 35In 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) 40UK 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) 45In 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) the bank levy is charged as provided for by paragraph 4
(groups),

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

(c) B, or another member of the relevant group, recognises, as
assets, amounts (“N’s liabilities”) that are due to any
10member of the relevant group from N,

(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
15provision 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) The reference in sub-paragraph (2) to a “single net settlement” is a
reference to a single net settlement of—

(a) 20all 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) at the option of B, but not at the option of N, if a netting
25event 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
of sub-paragraph (1)(d).

(5) 30An 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
relevant group.

(6) 35For 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 B, or another member of the relevant group,
40to 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) in relation to B, if the insolvency or bankruptcy of
45B 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
under which such a liability arises.

27B (1) Paragraph 27D also applies for the purposes of paragraph 27(2)(b)
5if—

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

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

(c) 10B recognises, as assets, amounts due from that other entity
(“N”) to B (“N’s liabilities”),

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

(e) that provision is legally effective and enforceable.

(2) 15In 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) The reference in sub-paragraph (2) to a “single net settlement” is a
20reference to a single net settlement of—

(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) 25at 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
30of 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
35provided 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
40B 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
45under 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) The 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) 5“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) are not excluded liabilities.

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

(a) 10B, or

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

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

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

(a) 15if 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
one of those relevant foreign banks, and

(b) if an asset, or part of an asset, is included for the purposes
20of paragraph 15U in the net settlement assets of a member
of the relevant group, the asset (or part) is not to be
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
25are covered by the provision mentioned in paragraph 27A(1)(d) or
27B(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
30sub-paragraph (1)—

(a) the 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.””

35Consequential amendments

8 In 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 40In paragraph 40(1), for the words from “paragraphs 16” to the end substitute
“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
45(d), 25(1)(c) and (d), 27A(1)(d) and (e) or 27B(1)(d) and (e).”

(3) In sub-paragraph (14)—

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

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

“(a) 5a chargeable UK resident entity which is a member
of 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 10In paragraph 53(4)—

(a) in 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
15banking entity (see paragraph 15C(2)),”,”

(c) omit 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) 20In sub-paragraph (5)(c)—

(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) 25for “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) 30In 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
35of 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) 40After 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—

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