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HMRC internal manual

International Manual

Foreign banks trading in the UK through permanent establishments: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets - the Basel II regulatory regime: The interim period

A difficulty arises in that a thin capitalisation approach requires a comparison of the hypothesised separate enterprise with a UK bank conducting the same or similar activities under the same or similar conditions. Because the UK did not implement Basel II until January 2008 there are insufficient data on which to base such a comparison. This fact should fully inform any risk assessment.

HMRC is taking steps to enhance data capture in future years but recognises that for purposes of statistical validity a suitable database will not exist until banks’ results shown in accounting periods beginning between 1 January 2008 and 31 December 2010 have been determined. Therefore, branches submitting returns for those accounting periods will receive one of three different approaches reflecting the regulatory regime adopted by the overall bank (see INTM267753). This is termed “the interim period”.