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HMRC internal manual

International Manual

HM Revenue & Customs
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The attribution of capital to foreign banking permanent establishments in the UK: The approach in determining an adjustment to funding costs - STEP 3: Determining the equity capital: Tiers 1, 2 and 3

CTA09/S21(2)(b) provides that it shall be assumed that a UK permanent establishment has the equity capital which it would have if it were a distinct and separate enterprise, engaged in the same, or similar activities under the same or similar circumstances.

The term ‘equity capital’ has not been defined in the legislation since it is generally well understood. In the banking sector the capital supporting a bank’s activities and risks is split into three categories - Tiers 1, 2 and 3. While Tier 1 will consist largely of equity capital and Tiers 2 and 3 largely of loan capital, the extent to which items in these tiers will be regarded as equity or loan capital for the purposes of CTA09/Part 2/Chapter 4 is set out in INTM267763 (Tier 1), INTM267764 (Tier 2) and INTM267765 (Tier 3).