Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
313


The proportion which B is of A is “X%”.
Step 3

In accordance with paragraph 27, determine the amount (“C”) of the bank’s
chargeable equity and liabilities.
Step 4
5

The amount of the UK allocated equity and liabilities is X% of C.
Step 5

Determine the proportion (“Y%”) of C which is long term equity and
liabilities.
Step 6
10

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
rest 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
15
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
standards or UK GAAP, or
20
(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)
under UK GAAP if that is what the bank prepares its
25
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
those liabilities,
30
(b)
the bank also has assets which correspond to liabilities which N has
to the bank,
(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
liabilities to N (so far as covered by the provision) and all N’s
35
liabilities to the bank (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
40
the 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).
45
      (3)
In sub-paragraph (1)—

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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(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
correspond to amounts due from that other party, and
5
(c)
“the netting event occurs” if the insolvency or bankruptcy of the
relevant 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)
In determining the amount of the bank’s assets at Step 1 in paragraph 24(1),
10
the amount of the bank’s net settlement assets is to be reduced (but not
below nil) by the amount of the bank’s net settlement liabilities.
      (5)
In determining the amount of the permanent establishment’s assets at Step
2 in paragraph 24(1)—
(a)
the reduction in the bank’s assets under sub-paragraph (4) is to be
15
ignored, but
(b)
the amount of the permanent establishment’s net settlement assets is
to be reduced by Z%.
      (6)
For this purpose, “Z%” is the proportion by which the bank’s net settlement
assets are reduced under sub-paragraph (4).
20
      (7)
In determining the amount of the bank’s chargeable equity and liabilities at
Step 3 in paragraph 24(1), the amount of the bank’s net settlement liabilities
is to be reduced (but not below nil) by the amount of the bank’s net
settlement assets (ignoring the reduction under sub-paragraph (4)).
      (8)
The bank’s “net settlement liabilities” are its liabilities to N so far as they—
25
(a)
are covered by the provision mentioned in sub-paragraph (1)(c), and
(b)
are not excluded liabilities.
      (9)
The bank’s “net settlement assets” are its assets so far as corresponding to
N’s net settlement liabilities.
     (10)
“N’s net settlement liabilities” means N’s liabilities to the bank so far as they
30
are covered by the provision mentioned in sub-paragraph (1)(c).
     (11)
The permanent establishment’s “net settlement assets” are its assets so far as
they are part of the bank’s net settlement assets.
     (12)
If the bank’s net settlement liabilities exceed the bank’s net settlement assets
(ignoring the reduction under sub-paragraph (4)), and a proportion (A%) of
35
those liabilities is long term liabilities and a proportion (B%) of those
liabilities is short term liabilities, under sub-paragraph (7)—
(a)
the long term liabilities are reduced by A% of the bank’s net
settlement assets, and
(b)
the short term liabilities are reduced by B% of those assets.
40
26    (1)
This paragraph applies for the purposes of Step 2 in paragraph 24(1).
      (2)
The assets of the 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
45
(b)
dealt wholly independently with the relevant foreign bank.

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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      (3)
For this purpose, any relevant provisions of sections 21 to 28 of CTA 2009 are
to be applied as they would be applied in determining profits attributable to
the permanent establishment for corporation tax purposes.
      (4)
But where paragraph 24(1) is being applied in determining the UK allocated
equity and liabilities of a relevant foreign bank for the purposes of
5
paragraph 17(17) or 19(17), any assets within sub-paragraph (5) are to be left
out.
      (5)
The assets within this sub-paragraph are any assets of the permanent
establishment (as otherwise determined under this paragraph) representing
an excluded loan relationship.
10
      (6)
A loan relationship is “excluded” if—
(a)
the relevant foreign bank is the creditor,
(b)
the debtor (“D”) is a UK resident bank or another relevant foreign
bank—
(i)
which is a member of the relevant group, and
15
(ii)
whose activities include the relevant regulated activity
described in the provision mentioned in paragraph 78(a),
(c)
the money which is the subject of the transaction giving rise to D’s
debt is money borrowed by the relevant foreign bank from another
entity, and
20
(d)
in borrowing that money the relevant foreign bank 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 for corporation tax
purposes.
25
27    (1)
This paragraph applies for the purposes of Step 3 in paragraph 24(1).
      (2)
To determine the amount of the relevant foreign bank’s chargeable equity
and liabilities—
(a)
determine the amount of the bank’s equity and liabilities (other than
excluded equity and liabilities) as at the end of the chargeable period,
30
(b)
adjust that amount in accordance with sub-paragraph (5) and
paragraphs 25(7) 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 the
end of that period, other than any asset which for the
35
purposes of an adjustment under paragraph (b) is an asset to
which paragraph 25(7) applies, and
(ii)
where sub-paragraph (4) applies, the amount determined
under that sub-paragraph.
      (3)
Sub-paragraph (4) applies where—
40
(a)
as 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 bank,
(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
45
paragraph 25(7) applies, and
(c)
underlying that asset, as collateral, is an item (“the collateral”) owned
by the bank which would form part of the bank’s high quality liquid

Finance (No. 3) Bill
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Part 4 — Chargeable equity and liabilities
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assets as at the end of that period were the collateral, rather than the
financial asset, an asset of the bank.
      (4)
The 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
5
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.
      (5)
Where paragraph 24(1) is being applied in determining the UK allocated
10
equity and liabilities of a relevant foreign bank for the purposes of
paragraph 17(17) or 19(17), the following liabilities are to be left out—
(a)
any liabilities to a relevant member as defined in paragraph 18(2) or
20(2) (as the case may be), or
(b)
any liabilities to another relevant foreign bank covered by paragraph
15
17(17) or 19(17) (as the case may be) so far as the other bank’s assets
corresponding to the liabilities are assets of the permanent
establishment through which the other bank carries on a trade in the
United Kingdom as determined at Step 2 in paragraph 24(1).
      (6)
In reducing any amount of equity or liabilities under sub-paragraph (2)(c),
20
long term equity and liabilities are to be reduced before short term liabilities.
“Excluded” equity and liabilities
28    (1)
Equity or liabilities are “excluded” so far as they consist of equity or
liabilities which are specified to be excluded—
(a)
by any of paragraphs 29 to 39, or
25
(b)
by an order made by the Treasury.
      (2)
The Treasury may also by order add to, repeal or otherwise amend any of
paragraphs 29 to 39.
      (3)
An order under this paragraph may make consequential amendments of
paragraph 75 (“long term” liabilities: non-protected deposits).
30
      (4)
An order under this paragraph may have retrospective effect in relation to—
(a)
any chargeable period in which the order is made, or
(b)
in the case of an order made on or before 31 December 2011, any
chargeable period ending on or after 1 January 2011.
      (5)
Orders under this paragraph are to be made by statutory instrument.
35
      (6)
A statutory instrument containing an order under this paragraph may not
be made unless a draft has been laid before, and approved by a resolution
of, the House of Commons.
29    (1)
Liabilities representing protected deposits are excluded.
      (2)
A deposit is “protected” so far as it is covered by the Financial Services
40
Compensation Scheme under section 213 of FISMA 2000 (“the FSCS”).
      (3)
A deposit is “protected” so far as it is covered by a scheme which—
(a)
operates outside the United Kingdom, and
(b)
is comparable to the FSCS.

Finance (No. 3) Bill
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Part 4 — Chargeable equity and liabilities
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      (4)
Sub-paragraph (5) applies for the purposes of sub-paragraphs (2) and (3) if—
(a)
the entity holding the deposit (“the relevant deposit”) is required to
pay, in relation to the scheme, levies for purposes mentioned in
section 213(3)(b) of FISMA 2000 or purposes comparable to those
purposes,
5
(b)
those levies are calculated—
(i)
by reference to a proportion (“X%”) of the total amount of all
deposits held by the entity or all deposits held by the entity
within a specified class within which the relevant deposit
falls, or
10
(ii)
by reference to another amount which is a proportion (“Y%”)
of the total amount of all the scheme deposits held by the
entity, and
(c)
X% or (as the case may be) Y% exceeds the proportion (“Z%”) of the
relevant deposit covered by the scheme.
15
      (5)
The scheme is treated—
(a)
in a case within sub-paragraph (4)(b)(i), as covering X% of the
relevant deposit (instead of Z%), and
(b)
in a case within (4)(b)(ii), as covering Y% or, if smaller, 100% of the
relevant deposit (instead of Z%).
20
      (6)
In sub-paragraph (4) “scheme deposit” means a deposit the whole or part of
which is covered by the scheme (disregarding sub-paragraph (5)).
      (7)
A deposit is “protected” so far as it is covered by a guarantee—
(a)
which is given explicitly by a national government (other than the
government of the United Kingdom), and
25
(b)
under which the government guarantees to compensate depositors
for losses on their deposits.
      (8)
In sub-paragraph (2), and sub-paragraphs (4), (5) and (6) so far as relating to
a scheme within sub-paragraph (2), “deposit” has the meaning given by
article 5(2) of the Financial Services and Markets Act 2000 (Regulated
30
Activities) Order 2001 (S.I. 2001/544).
      (9)
In sub-paragraphs (3) and (7), and sub-paragraphs (4), (5) and (6) so far as
relating to a scheme within sub-paragraph (3), “deposit” has the meaning
given by article 5(2) of that Order but ignoring the exclusions in articles 6 to
9AB.
35
     (10)
If two or all of sub-paragraphs (2), (3) and (7) apply to a deposit, the amount
of the deposit “protected” is the highest amount which results from any one
of those sub-paragraphs.
30    (1)
Equity and liabilities which are “tier one capital equity and liabilities” are
excluded.
40
      (2)
“Tier one capital equity and liabilities” means, in relation to an entity or a
group of entities, so much of the entity or group’s equity and liabilities as—
(a)
is tier one capital before deductions for the purposes of the FSA
Handbook, or
(b)
would be treated as tier one capital before deductions for those
45
purposes were the tier one capital before deductions of the entity or
group as at the end of the chargeable period to be determined under
that Handbook.

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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31    (1)
Sovereign repo liabilities are excluded.
      (2)
“Sovereign repo liability” means a liability of a person (“A”) which
represents a sum of money or other asset received by A from another person
(“B”) under an arrangement where—
(a)
under the arrangement A sells high quality securities at any time to
5
B,
(b)
the arrangement makes provision conferring a right or imposing an
obligation on A to buy those or similar securities at any subsequent
time, and
(c)
the subsequent buying of those or similar securities would
10
extinguish the liability.
      (3)
Section 556 of CTA 2009 (meaning of securities and similar securities)
applies for the purposes of sub-paragraph (2) as it applies for the purposes
of Chapter 10 of Part 6 of that Act.
      (4)
Securities are “high quality” if—
15
(a)
they are debt securities issued by entities within section BIPRU
12.7.3(1) or (2) of the FSA Handbook which meet the requirements of
section BIPRU 12.7.4(1) and (2), or
(b)
they are issued by a designated multilateral development bank.

“Debt securities” has the same meaning as that term has in section BIPRU
20
12.7.3 of the FSA Handbook.
32    (1)
Sovereign stock-lending liabilities are excluded.
      (2)
“Sovereign stock-lending liabilities” means liabilities of the lender to
redeliver equivalent cash collateral under a stock lending arrangement in
respect of high quality securities.
25
      (3)
Section 805 of CTA 2010 (“stock lending arrangement”) applies for the
purposes of sub-paragraph (2) as it applies for the purposes of Chapter 5 of
Part 17 of that Act, and the reference in sub-paragraph (2) to “the lender” is
to be construed accordingly.
      (4)
Paragraph 31(3) and (4) apply for the purposes of this paragraph.
30
33    (1)
Relevant insurance liabilities are excluded.
      (2)
“Relevant insurance liabilities” means liabilities of a regulated insurer
carrying on an insurance business which are—
(a)
liabilities to policyholders under contracts of general insurance or
contracts of long-term insurance, including such contracts effected or
35
carried out outside the United Kingdom,
(b)
liabilities representing unallocated surpluses, or
(c)
liabilities representing participants’ interests in collective
investment schemes.
      (3)
The liabilities of a regulated insurer within sub-paragraph (2)(c) include a
40
liability which would be a liability of the insurer within that provision if the
insurer prepared consolidated financial statements.
      (4)
In this paragraph—
“collective investment scheme” has the same meaning as in Part 17 of
FISMA 2000 (see sections 235 and 237 of that Act);
45

Finance (No. 3) Bill
Schedule 19 — The bank levy
Part 4 — Chargeable equity and liabilities
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“contract of general insurance” means a contract of a type described in
Part 1 of Schedule 1 to the Financial Services and Markets Act 2000
(Regulated Activities) Order 2001 (S.I. 2001/544);
“contract of long-term insurance” means a contract of a type described
in Part 2 of that Schedule;
5
“regulated insurer” means an entity which—
(a)
is authorised under the law of any territory to carry on
insurance business, or
(b)
is a member of a body or organisation which is so authorised;
“unallocated surplus” means the fund for future appropriations shown
10
in line 15 of Form 3 of a return deposited with the Financial Services
Authority under section 9.6 of the Interim Prudential Sourcebook for
Insurers made by that Authority under FISMA 2000.
34    (1)
Relevant property, plant and equipment reserves are excluded.
      (2)
“Relevant property, plant and equipment reserves” means equity amounts
15
representing revaluation reserves relating to the revaluation of property,
plant and equipment under International Accounting Standard 16 or
Financial Reporting Standard 15.
      (3)
“Property, plant and equipment” has the meaning given, for the time being,
by International Accounting Standard 16.
20
35    (1)
Relevant tax liabilities are excluded.
      (2)
In relation to liabilities to be determined by reference to amounts recognised,
or which would have been recognised, in consolidated financial statements
or financial statements prepared under international accounting standards,
“relevant tax liabilities” means liabilities representing—
25
(a)
current tax or deferred tax liabilities within the meaning, for the time
being, of International Accounting Standard 12, or
(b)
an amount of the bank levy.
      (3)
In relation to liabilities to be determined by reference to amounts recognised,
or which would have been recognised, in consolidated financial statements
30
or financial statements prepared under UK GAAP, “relevant tax liabilities”
means liabilities representing—
(a)
current tax or deferred tax within the meaning, for the time being, of
Financial Reporting Standard 16 or 19, or
(b)
an amount of the bank levy.
35
36    (1)
Relevant retirement benefit liabilities are excluded.
      (2)
In relation to liabilities to be determined by reference to amounts recognised,
or which would have been recognised, in consolidated financial statements
or financial statements prepared under international accounting standards,
“relevant retirement benefit liabilities” means liabilities under defined
40
benefit plans within the meaning, for the time being, of International
Accounting Standard 19.
      (3)
In relation to liabilities to be determined by reference to amounts recognised,
or which would have been recognised, in consolidated financial statements
or financial statements prepared under UK GAAP, “relevant retirement
45
benefit liabilities” means liabilities under defined benefit schemes within the
meaning, for the time being, of Financial Reporting Standard 17.