BKLM315700 - chargeable equity and liabilities: designated FPE entities: non-UK allocated equity and liabilities etc

Paragraph 15Z1 of Schedule 19

The following steps should be taken to determine the non-UK allocated equity and liabilities attributable to a foreign permanent establishment (FPE) of a designated FPE entity (see BKLM315200) as at the end of the chargeable period:

Step 1

Determine the amount (A) of the assets of the designated FPE entity (see BKLM315300) after adjusting for any netting (see BKLM315800).

Step 2

Determine the amount (B) of the assets of the FPE after adjusting for netting (see BKLM315800). Further guidance on how to calculate the assets held by the FPE is at (see BKLM315700).

Calculate the proportion of the designated FPE entity’s assets that are held by the FPE to give ‘X%’, that is calculate the proportion that B is of A.

Step 3

Determine the amount (C) of equity and liabilities of the designated FPE entity as if no election to designate the entity as a designated FPE entity had been made.

To calculate C first determine the amount of the entity’s equity and liabilities in the entity’s financial statements ,as prepared under IAS, and then adjust that amount in accordance with Paragraph 15N of Schedule 19 (see BKLM315600).

Step 4

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

To determine the UK-based (or adjusted) equity and liabilities of a designated FPE entity as at the end of the chargeable period now follow step 5:

Step 5

Follow steps 1 to 4 to determine the amount of the non-UK allocated equity and liabilities attributable to each of the entity’s FPEs in respect of which an election has been made to disregard the non-UK allocated equity and liabilities.

Then reduce C by the total of the above amounts. This calculation will give the amount (Z) of the designated FPE entity’s UK-based (or adjusted) equity and liabilities.

To determine how much of the designated FPE entity’s equity and liabilities is to be treated as long term equity and liabilities and how much as short term liabilities [see BKLM154300] follow steps 6 and 7:

Step 6

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

Step 7

  1. Treat Y% of Z as long term equity and liabilities and the rest as short term liabilities.

Example 1:

If the designated FPE entity’s assets (A) are 200 and FPE branch assets (B) are 40.

Then X% is 40/200 = 20%.

The chargeable equity and liabilities of the designated FPE entity (C) are 125.

The non-UK allocated equity and liabilities are 20% of 125 = 25.

Therefore the chargeable equity and liabilities to be allocated to the UK (Z) are 125 less 25 = 100.

Paragraph 15Z2 of Schedule 19

Assets of the FPE

The assets of the FPE are those which it would have were it a distinct and separate enterprise which:

  • engaged in the same or similar activities under the same or similar conditions; and
  • dealt wholly independently with the rest of the designated FPE entity.

When determining the assets of the FPE any relevant provisions of Chapter 3A of Part 2 of CTA 2009 are to be applied as they would in determining profits attributable to the FPE for corporation tax purposes.

Any assets of the FPE representing an excluded loan relationship should be left out in determining the FPE’s assets. A loan relationship is excluded if:

  • The designated FPE entity is the lender or creditor;
  • The borrower or debtor (D) is a UK resident bank, a building society or a relevant foreign bank which is a member of the relevant group and whose activities include deposit taking;
  • The money giving rise to D’s debt is borrowed by the designated FPE entity from another entity; and
  • In borrowing that money the designated FPE was acting as the agent or intermediary of D.

The concepts required to determine the assets of a FPE are similar to those set out in BKLM378000 for attributing chargeable equity and liabilities of a foreign bank to a UK branch.