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HMRC internal manual

International Manual

The attribution of capital to foreign banking permanent establishments in the UK: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets: intra-company netting of third party assets

Netting agreements are one of the tools used by banks to manage credit risk and to reduce their capital requirements. HMRC will allow the netting of intra-company assets and liabilities when calculating the amount of capital to be attributed to the permanent establishment for tax purposes to the extent that:

  • the Financial Services Authority (FSA) would allow netting of assets and liabilities, and
  • provided that the FSA’s requirements for netting between different parts of a company, such as an acceptable netting agreement, are met