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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: treasury functions

Transactions with a separate company should be risk weighted in accordance with the rules of the Financial Services Authority (FSA) - see INTM266711 -, but specific concerns arise over treasury operations carried out by a UK permanent establishment (PE). Generally, where funds are raised by a PE and passed onto a separate entity as part of a treasury activity carried on by that PE, the financial asset arising from that transaction should be risk weighted in the normal way. However, there are situations where this treatment could give rise to anomalous results as the same funds could effectively be risk weighted twice within the UK. HMRC will therefore accept that where funds are raised by the PE in the following circumstances, then that treasury transaction will not be risk weighted for the purposes of calculating the amount of capital attributable to the PE.

  • The funds are raised by the PE as part of a treasury activity undertaken by that PE.
  • They are passed on to another company which carries on a banking business and is regulated by the FSA on a solo basis or as parent of a solo consolidated group.
  • The funds are used by the company carrying on the banking business to create a financial asset which will be subject to the risk weighting rules.