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HMRC internal manual

Bank Levy Manual

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Double Taxation Relief: France: subject to more than one foreign levy

Regulation 12 of SI2012/458

As many banking groups are multi-nationals it is possible that an entity subject to the UK bank levy may also be part of a group that is subject to two or more other levies. For example a French group may own a German bank which then trades in the UK via a Permanent Establishment.

The principle of home state primacy is adopted for double taxation relief for the bank levy in respect of both the French and German bank levies. This means that where a foreign entity owns subsidiaries subject to the UK bank levy or trades in the UK via a Permanent Establishment the UK will give relief for any foreign levy charged upon entities that are subject to the UK bank levy. Where an entity is subject to the UK bank levy and two or more foreign levies, the principle of home state primacy means that relief will be given for the foreign levy charged upon the ultimate or higher parent before any intermediate or lower parent. For instance in the situation mentioned above relief will be given for the French levy before the German levy.

Due to the complex structures of some groups it is possible that UK subsidiaries may be held by intermediate holding companies in separate countries and each intermediate holding company may be subject to a bank levy and then the ultimate parent subject to a levy as well.

Example 1

The parent is in Territory 1 which imposes a bank levy upon the world wide assets of any group headquartered there. The parent holds subsidiary banking entities in Territories 2 and 3. Territories 2 and 3 also impose bank levies upon the world wide assets of any subsidiary banking entity that is resident there. These intermediate banking entities then each hold a UK bank (see Diagram 1 (Word 33KB)).

Under the principle of home state primacy (on the assumption that all relevant agreements follow that principle) the UK will give relief for any levy charged by Territory 1 upon the UK bank before relief for any levy charged by Territories 2 and 3. However when the UK comes to consider giving relief for the levies charged by Territories 2 and 3 they are equal under home state primacy. Therefore in this situation the UK entity may select which of the foreign levies will be given relief to first; that is they can elect to have any relief for the bank levy paid in Territory 3 in respect of the UK entity given before any relief for the bank levy paid in Territory 2 or vice versa. The amount of relief is still subject to the normal limits that is the UK bank levy cannot be reduced below £nil. Also note that relief for the foreign bank levy charged in Territory 2 can only be set against UK bank levy charged upon UK Bank 1. It is not available to be set against UK bank levy chargeable upon UK Bank 2. This is also true for Territory 3. See BKLM740180.

Example 2

Here the ownership structure is more complicated. As in Example 1, the parent is in Territory 1 which imposes a bank levy upon the world wide assets of any group headquartered there. Again the parent holds subsidiary banking entities in Territories 2 and 3. The subsidiary banking entity in Territory 2 holds a subsidiary banking entity in Territory 4. The subsidiary banking entities in Territories 3 and 4 then each hold a UK bank (see Diagram 2 (Word 36KB)). As in Example 1 relief will be given for any bank levy charged by Territory 1 first. If both Territories 2 and 3 have bank levies, then again the UK bank can elect which territories’ bank levy will be relieved first. Any bank levy paid in Territory 4 will then be given relief last.

If Territory 3 does not charge a bank levy then the order for giving relief for bank levies paid will be Territory 1, Territory 2 and finally Territory 4.

If Territory 2 does not charge a bank levy then the order for giving relief for bank levies paid will be Territory 1 and then the UK bank can elect between Territory 3 and Territory 4. This is because under the priority rule, as Territory 2 does not charge a levy it is ignored and the company in Territory 4 is considered to be a direct subsidiary of the ultimate parent and therefore in the same position as the intermediate parent in Territory 3. But again credit for the foreign bank levy charged in Territory 3 can only be set against UK bank levy charged upon UK Bank 2. Credit for the foreign bank levy charged by Territories 2 and 4 can only be set against UK bank levy charged upon UK Bank 1. See BKLM740180.

The order for relief is set out in Regulation 12 of SI2012/458.