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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 4: determining the loan capital: exceptional circumstances - no tax-deductibles in the home territory

There are situations where applying the capital structure of the company as a whole to the permanent establishment (PE) will not give rise to an arm’s length result - see INTM267772. One such situation is the unusual position of banks which do not, and have no need to, issue tax-deductible capital in their home territory. It is accepted that if such a bank were to set up a subsidiary company in another territory it would, in all likelihood, issue some tax-deductible capital (if such capital were a common feature of banks trading in that other territory). In such a case, applying the capital structure of the company as a whole to the PE trading in the UK is unlikely to give an arm’s length result. Instead, regard should be had to the other factors mentioned in INTM267761 to INTM267772.

If banks resident in other countries feel that exceptional circumstances apply in their case then they should discuss these circumstances with HMRC at the earliest opportunity.