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HMRC internal manual

Bank Levy Manual

HM Revenue & Customs
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Chargeable equity and liabilities: relevant foreign banks: attribution of chargeable equity and liabilities to a branch: determining 'B' the assets of the UK branch (step 2): treasury functions

Paragraph 26(5) of Schedule 19

For corporation tax purposes, where the branch raises funds and passes them to a separate entity as part of a treasury operation, that is acting as an agent or intermediary, the asset is risk weighted at zero provided the other company is FSA regulated and carries on a banking business in which the funds are used to create a fully weighted financial asset.

For bank levy purposes, paragraph 26(5) - (7) of Schedule 19 seeks to replicate this by providing that where the branch borrows to lend to a UK resident bank or another relevant foreign bank and in doing so acts in the capacity of an agent or intermediary, the loan relationship is excluded and no asset is created.

There is no all embracing definition of an agent or intermediary in these circumstances and each case must be judged on its own facts and circumstances. Some common characteristics, however, will be that:

  • HMRC is satisfied that raising or finding the money in the relevant market for lending elsewhere is an activity commonly carried on by independent banks in the UK market
  • the independent clients to whom the money raised is ultimately on-lent are not clients to whom banks in the UK market would normally lend direct: that is, they are primarily clients for the purpose of the relevant lending of the enterprise of which the UK permanent establishment is a part, and
  • the UK permanent establishment has not sacrificed to another part of the enterprise a profit which it could have made in the normal course by lending money to the independent client itself.

It should be noted that it is not the case that the UK permanent establishment must perform treasury or agency/intermediary functions exclusively of other business. It may for the purposes of the bank levy conduct both normal banking business with third parties and also perform the agency/intermediary role. In such circumstances the normal banking business will create assets for bank levy purposes while the agency/intermediary business will not.