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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 5: Determining the capital attribution tax adjustment: Frequency of calculations

Although a banking regulator may require daily reports of a bank’s capital for monitoring purposes, what we are attempting to arrive at is a pragmatic basis of calculation, which reflects the facts of a particular case, not a replication of the reporting requirements of the Financial Services Authority (FSA). Therefore, the legislation sets no rule about how frequently calculations should be performed, beyond the general need to have taken the attribution of capital into account when filing the tax return for the permanent establishment (PE) in order to have submitted a correct self assessment.

The frequency of the capital attribution calculations will depend on the facts in a particular case, but in the vast majority of cases we are not expecting this to be calculated on a daily, weekly or even monthly basis. The frequency should be governed by what is reasonably required to ensure an accurate self-assessment.

At one end of the spectrum there may be a PE with relatively little movement in the level of assets in the year and, therefore, relatively little movement in the amount of capital that would be required to support those assets. In such a case it would be appropriate to calculate the level of capital and any associated interest disallowance by reference to the level of assets at the end of the year.

Further along the spectrum, where there has been a reasonably steady rise or fall in assets then a simply arithmetic average of the opening and closing levels of assets will be sufficient.

At the opposite end of the spectrum, in cases where there are large one off spikes or dips in the level of assets then it might be necessary to calculate the level of capital required to and from the dates of those events. For instance, if the level of assets in a PE doubled in a particular period and then stayed more or less constant until the end of the year it might be appropriate to look at the level of capital required from the beginning of the year until the change in asset levels took place and then from that date until the end of the year.