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HMRC internal manual

International Manual

Foreign banks trading in the UK through permanent establishments: Attribution of financial assets and split function business

Where a Permanent Establishment (PE) undertakes the functions that give rise to a financial asset then that asset, and the related profits or losses, should be attributed to that PE even if the asset is actually ‘booked’ in another part of the bank. The domestic law provisions dealing with this are at CTA09/S19 to S32.

CTA09/S27 provides that in accordance with the separate enterprise principle, loans and other financial assets, and the profits arising from them, are to be attributed to a PE to the extent that they can reasonably be regarded as having been generated by the activities of the PE. CTA09/S27(3) and (4) set out a number of factors that should be taken into account in determining whether or not the financial asset has been generated by that PE.

It is possible that the functions that give rise to the financial asset are performed in more than one location, in which case it may be necessary to consider which PE should be attributed the asset based on a consideration of the facts and of the functions performed.

The PE that is attributed the asset will also be attributed the profit or loss from that asset after other parts of the bank have been appropriately rewarded for the activities and functions that they have undertaken.

Where a PE has:-

  • assets that arise from activities conducted as a global trading arrangement, and/or
  • profits from assets, which are dealt with as part of a profit split for profit attribution purposes (which may or may not be covered by an advance pricing agreement),

then the proportion of those assets and profits which should be treated as assets and profits of the permanent establishment should be consistent with the facts, with the logic of the business and the profit split (assuming that the profit split achieves a result which appropriately rewards all parts of the business and is in accordance with the separate enterprise principle incorporated into UK domestic law).