Finance Act 2018

(12ABZB) (1) A partnership return is conclusive for tax purposes as to— (a) whether a person does or does not have a share in the profits or losses of the partnership for any period, and (b) what the share of any person in those profits or losses is. (2) That applies even where the person would not otherwise be chargeable to tax on profits of the partnership. (3) If there is a dispute between the person mentioned in subsection (1)(a) or (b) and any one or more partners in the partnership about whether what is given in a partnership return is correct as to the matters mentioned in that subsection, a party to the dispute may refer it to the tribunal for determination. (4) That does not include a dispute to the extent that it is in substance about the amount (before sharing) of the partnership's profits or losses for a period. (5) A referral under subsection (3) must be made before the end of the period of 12 months beginning with the day after— (a) the day on which the partnership return was delivered, or (b) if the dispute relates to an amendment to the return made under section 12ABA (amendment of partnership return by taxpayer), the day on which the amendment was made. (6) Where a dispute is referred to the tribunal under subsection (3)— (a) the party referring it must at the same time give notice of the referral to— (i) HMRC, and (ii) the reporting partner, and (b) the reporting partner must give notice of the referral to— (i) every other partner in the partnership, and (ii) any other person appearing to the reporting partner to be a party to the dispute. But notice need not be given under this subsection to anyone who referred the dispute. (7) Where the tribunal determines that what is given in the partnership return as to the matters referred to in subsection (1)(a) or (b) is not correct— (a) the tribunal must determine what the return should have given, and (b) HMRC must amend the return accordingly. (8) Where a partnership return is amended under subsection (7)(b), HMRC must by notice to any party to the proceedings or any partner in the partnership amend— (a) their return under section 8 or 8A of this Act, or (b) their company tax return, if the amendments are necessary to give effect to the consequences of the amendment of the partnership return. (9) Where at any time after a referral is made under subsection (3) but before the tribunal determines the dispute the reporting partner gives notice to HMRC that all the partners in the partnership (whether or not party to the proceedings) have agreed in writing that the partnership return— (a) is correct without variation, or (b) requires correcting in a particular manner, the like consequences shall ensue for all purposes as would have ensued if, at the time the agreement was made, the tribunal had determined the dispute in accordance with the terms of the agreement. (10) Subsection (9) does not apply if— (a) within the period of 30 days beginning with the date of the agreement, a party to the agreement gives notice to the other parties to the agreement that the party wishes to repudiate or resile from the agreement, or (b) within the period of 30 days beginning with the date on which it receives notice of the agreement, HMRC gives notice to the reporting partner of its objection to the agreement. (11) A partnership return which has been the subject of a referral under subsection (3) may not be the subject of another referral under that subsection, unless that other referral— (a) relates to a dispute arising in consequence of an amendment of the partnership return under section 12ABA (amendment of partnership return by taxpayer), and (b) is the first referral following the amendment. (12) In this section— - “reporting partner” means the partner who made and delivered the partnership return or that partner's successor; - references to a partner in a partnership are to a person who was a partner in it at any time during the period in respect of which the partnership return was made.

• (3) In section 12ABA(1) (amendment of partnership return by taxpayer), after “partnership return” insert “ (including anything included in the return by virtue of section 12ABZB(7)(b) (amendment of partnership return following referral to tribunal)) ”.

• (4) In section 12AC (enquiry into partnership return)—

• (a) in subsection (2), after paragraph (c) insert—

(d) if a dispute in relation to the return is referred to a tribunal under section 12ABZB(3) of this Act, up to and including the quarter day next following the first anniversary of the day on which HMRC received notification of the referral.

;

• (b) in subsection (3), at the end insert “ or in consequence of the referral of a dispute about the return under section 12ABZB(3) of this Act ”;

• (c) in subsection (4), for “, subject to the following limitation” substitute “ and including anything included in the return by virtue of section 12ABZB(7)(b), subject to the following limitations ”;

• (d) after subsection (5) insert—

(5A) If the notice of enquiry is given as a result of the referral of a dispute under section 12ABZB(3) of this Act— (a) at a time when it is no longer possible to give notice of enquiry under subsection (2)(a) or (b) above, (b) after a final closure notice has been issued in relation to an enquiry into the return, or (c) after a partial closure notice has been issued in such an enquiry in relation to the matters to which the dispute relates or which are affected by it, the enquiry into the return is limited to the matters to which the dispute relates or which are affected by it.

• (5) In section 12AD (amendment of partnership return by taxpayer during enquiry)—

• (a) in the heading, after “taxpayer” insert “ , or referral of dispute, ”;

• (b) in subsection (1)—

• (i) after “taxpayer)” insert “ , or a dispute about the return is referred to the tribunal under section 12ABZB(3) of this Act, ”;

• (ii) after “the amendment”, in both places it occurs, insert “ or dispute ”;

• (c) in subsection (2), after “amendment” insert “ or dispute ”.

• (6) In section 28B(2)(b) (completion of enquiry into partnership return), after “return” insert “ (including anything included in the return by virtue of section 12ABZB(7)(b) (amendment of partnership return following reference to tribunal)) ”.

• (7) In section 30B(1) (amendment of partnership return where loss of tax discovered), in the words after paragraph (c), after “return” insert “ (including anything included in the return by virtue of section 12ABZB(7)(b) (amendment of partnership return following reference to tribunal)) ”.

• (8) In section 55 (recovery of tax not postponed)—

• (a) in subsection (8B), for “and (8D)” substitute “ to (8E) ”;

• (b) in subsection (8C)—

• (i) in paragraph (c), omit the final “or”;

• (ii) after paragraph (c) insert—

(ca) any amount of tax specified in the notice by virtue of an amendment made under section 227(7A) of that Act, or

;

• (c) after subsection (8D) insert—

(8E) If the payment of an amount of tax within subsection (8C)(ca) is postponed by virtue of this section immediately before notice of the amendment is given, it ceases to be so postponed with effect from the time that the notice of the amendment is given, and the tax is due and payable on or before— (a) the last day of the period of 30 days beginning with the day on which the notice is given, or (b) if later, the last day on which it would have been payable under subsection (8D) if it had been included in the amount specified in the accelerated payment notice or partner payment notice when that notice was given.

• (9) In section 59B(5)(b) (payment of tax following amendment of self-assessment), after “section” insert “ 12ABZB(8), ”.

• (10) In Schedule 3ZA (date by which payment to be made after amendment or correction of self-assessment), in paragraph 7 (amendment consequential on correction of partnership return by Revenue)—

• (a) in the heading, at the end insert “ or tribunal determination of partnership dispute ”;

• (b) in sub-paragraph (1), after “under” insert “ section 12ABZB(8)(a) of this Act (consequential amendment of partner's personal or trustee return where partnership return corrected following reference to tribunal) or ”;

• (c) in sub-paragraph (2), after “section” insert “ 12ABZB(8)(a) or ”.

11

In section 850 of ITTOIA 2005 (allocation of firm's profits or losses between partners), in subsection (1), after “850D” insert “ and section 12ABZB of TMA 1970 (partnership return is conclusive) ”.

12

In section 1262 of CTA 2009 (allocation of firm's profits or losses between partners), in subsection (1), after “1264A” insert “ and section 12ABZB of TMA 1970 (partnership return is conclusive) ”.

13

• (1) FA 2014 is amended as follows.

• (2) In each of sections 220 and 221 (content of accelerated payment notice), at the end of subsection (3) insert “ (and disregarding any dispute which has been referred to a tribunal under section 12ABZB(3) of TMA 1970 but not yet determined) ”.

• (3) In section 226 (penalty for failure to pay accelerated payment), after subsection (7) insert—

(8) Where an amendment to an accelerated payment notice made under section 227(7A) (amendment following tribunal determination about partnership return) increases the amount of the accelerated payment, the amount of the increase is to be ignored for the purposes of— (a) this section, and (b) any other enactment imposing a penalty or surcharge for non-payment or late payment of tax.

• (4) In section 227 (withdrawal, modification or suspension of accelerated payment notice)—

• (a) after subsection (7) insert—

(7A) Where— (a) an accelerated payment notice is given, and (b) a partnership return (as defined in Schedule 32) to which the notice relates is amended under section 12ABZB(7)(b) of TMA 1970 (amendment following tribunal determination), HMRC may by notice given to P make consequential amendments to the accelerated payment notice.

;

• (b) in subsection (13), after “subsection (2)(c)” insert “ or an amendment made under subsection (7A) ”;

• (c) after subsection (13) insert—

(13A) If, as a result of an amendment made under subsection (7A), an amount payable to HMRC under section 223(2) is increased, the amount of that increase must be paid before— (a) the end of the period of 30 days beginning with the day on which notice of the amendment is given, or (b) if later, the end the payment period (within the meaning given by section 223(5)).

• (5) In Schedule 32 (accelerated payments and partnerships)—

• (a) in paragraph 4(2), at the end insert “ (and disregarding any dispute which has been referred to a tribunal under section 12ABZB(3) of TMA 1970 but not yet determined) ”;

• (b) in paragraph 7—

• (i) in paragraph (b), omit the final “and”;

• (ii) after paragraph (b) insert—

(ba) the reference in section 226(8) to an amendment to an accelerated payment notice made under section 227(7A) were to an amendment to a partner payment notice made under that section as applied by paragraph 8 of this Schedule, and

;

• (c) in paragraph 8(2)—

• (i) after paragraph (a) insert—

(aa) section 227(7A) has effect as if the reference to a partnership return to which the accelerated payment notice relates were a reference to the partnership return in relation to which the partner payment notice is given;

;

• (ii) in paragraph (b), omit the final “and”;

• (iii) after paragraph (c) insert

and (d) section 227(13A) has effect as if the reference to section 223(2) were to paragraph 6(2) of this Schedule and the reference to section 223(5) were to paragraph 6(5) of this Schedule.

14

The amendments made by paragraphs 10 to 13 have effect in relation to returns relating to the tax year 2018-19 or any subsequent tax year.

15

• (1) Schedule 14 to F(No.2)A 2017 (amendments relating to digital reporting etc) is amended as follows.

• (2) After paragraph 10B (as inserted by this Schedule) insert—

(10C) In section 12ABZB (partnership return conclusive as to partnership shares)— (a) in the heading, before “Partnership return” insert “ Section 12AA ”; (b) in subsections (1), (3), (5), (7), (8), (9), (11) and (12), before every “partnership return” insert “ section 12AA ”.

• (3) After paragraph 43 insert—

(43A) In section 227(7A)(b) (withdrawal etc of accelerated payment notice), before “partnership return” insert “ section 12AA ”.

• (4) In paragraph 46, at the end insert—

(5) In paragraph 8(2)(aa) (withdrawal etc of partner payment notices), before “partnership return”, in both places, insert “ section 12AA ”.

SCHEDULE 7

Introductory

1

Part 6A of TIOPA 2010 (hybrid and other mismatches) is amended as follows.

Meaning of “tax” etc and treatment of cases where tax charged at a nil rate

2

In section 259B (“tax” means certain taxes on income and includes foreign tax etc)—

• (a) after subsection (3) insert—

(3A) The payment of any withholding tax in respect of any amount is to be ignored for the purposes of this Part.

, and

• (b) at the end insert—

(5) In any case where— (a) a person is resident in a territory outside the United Kingdom generally for the purposes of the law of the territory or for particular purposes under that law, and (b) the law of the territory has no provision for a person to be resident for tax purposes under its law, any reference in Chapter 8 or 11 to a person's residence for tax purposes in the territory is to be read as a reference to the person's residence as mentioned in paragraph (a).

3

In section 259BC (meaning of “ordinary income”), in subsection (3), for the words from “it is excluded” to the end substitute

— (a) it is charged to the relevant tax at a nil rate, or (b) it is excluded, reduced or offset by any exemption, exclusion, relief, or credit— (i) that applies specifically to all or part of the amount of income (as opposed to ordinary income generally), or (ii) that arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount of income.

4

In section 259FA (circumstances in which Chapter 6 applies), after subsection (7) insert—

(7A) For the purposes of subsections (6) and (7) any increase in taxable profits or reduction of losses is to be ignored in any case where tax is charged at a nil rate under the law of the parent jurisdiction.

5

In section 259GB (hybrid payee deduction/non-inclusion mismatches and their extent), in subsection (3)(b)(i), after “charged” insert “ at a higher rate than nil ”.

6

In section 259KB (meaning of “excessive PE deduction”), after subsection (4) insert—

(4A) For the purposes of subsection (4) any increase in taxable profits or reduction of losses is to be ignored in any case where tax is charged at a nil rate under the law of the parent jurisdiction.

CFCs and foreign CFCs: qualifying CFC amounts

7

• (1) Section 259BD (chargeable companies in respect of CFCs and foreign CFCs) is amended as follows.

• (2) After subsection (12) insert—

(12A) For the purposes of subsection (2)— (a) a qualifying CFC amount arising to C is treated as an amount of relevant income, (b) a qualifying CFC amount arising to C, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than C's full marginal rate for that period, (c) in determining C's “full marginal rate”, the reference to the taxable profits mentioned in subsection (9) includes any qualifying CFC amount, and (d) in determining a “credit for underlying tax”, the reference to profits includes any qualifying CFC amount. (12B) For the purposes of subsection (12A) a “qualifying CFC amount” means an amount arising to C which is brought into account in calculating chargeable profits for the purposes of a foreign CFC charge. (12C) But an amount is not regarded for this purpose as brought into account so far as— (a) the amount is excluded, reduced or offset for the purposes of the foreign CFC charge by any exemption, exclusion, relief or credit that— (i) applies specifically to all or part of the amount (as opposed to amounts brought into account for those purposes generally), or (ii) arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or (b) the sum charged for the purposes of the foreign CFC charge is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications).

• (3) In subsection (13), in paragraph (b) of the definition of “chargeable profits”, after “Part” insert “ (including any qualifying CFC amount within the meaning given by subsection (12B)) ”.

Hybrid and other mismatches from financial instruments: qualifying capital amounts

8

In section 259CC (interpretation of section 259CB), at the end insert—

(7) A qualifying capital amount arising to a payee is treated as an amount of ordinary income of a payee and references to tax include any qualifying capital tax. (8) For the purposes of case 2— (a) a qualifying capital amount arising to a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee's full marginal rate for that period, (b) in determining the payee's “full marginal rate”, the reference to the taxable profits mentioned in subsection (4) includes any qualifying capital amount, and (c) in determining a “credit for underlying tax”, the reference to profits includes any qualifying capital amount. (9) If the rate at which a qualifying capital tax is charged on a qualifying capital amount of a payee exceeds the rate at which tax would be charged on an amount of income of the payee, the excess is to be ignored. (10) For the purposes of subsections (7) to (9) a “qualifying capital amount” means an amount of a capital nature on which a qualifying capital tax is charged. (11) A qualifying capital tax is not regarded for this purpose as charged on an amount so far as— (a) the amount is excluded, reduced or offset for the purposes of the tax by any exemption, exclusion, relief or credit that— (i) applies specifically to all or part of the amount (as opposed to amounts of a capital nature generally), or (ii) arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or (b) the tax is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications). (12) For the purposes of subsections (7) to (11) a “qualifying capital tax” means— (a) capital gains tax or the charge to corporation tax in respect of chargeable gains, or (b) any tax chargeable under the law of a territory outside the United Kingdom that corresponds to a United Kingdom tax mentioned in paragraph (a), but does not include any tax chargeable at a nil rate.

Hybrid transfer deduction/non-inclusion mismatches: qualifying capital amounts

9

In section 259DB (meaning of “hybrid transfer arrangement”, “underlying instrument” etc), at the end insert—

(7) For the purposes of subsection (4) references to tax include any qualifying capital tax within the meaning given by section 259DD(11).

10

In section 259DD (hybrid transfer deduction/non-inclusion mismatches: interpretation of section 259DC), at the end insert—

(6) A qualifying capital amount arising to a payee is treated as an amount of ordinary income of a payee and references to tax include any qualifying capital tax. (7) For the purposes of case 2— (a) a qualifying capital amount arising to a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee's full marginal rate for that period, (b) in determining the payee's “full marginal rate”, the reference to the taxable profits mentioned in subsection (4) includes any qualifying capital amount, and (c) in determining a “credit for underlying tax”, the reference to profits includes any qualifying capital amount. (8) If the rate at which a qualifying capital tax is charged on a qualifying capital amount of a payee exceeds the rate at which tax would be charged on an amount of income of the payee, the excess is to be ignored. (9) For the purposes of subsections (6) to (8) a “qualifying capital amount” means an amount of a capital nature on which a qualifying capital tax is charged. (10) A qualifying capital tax is not regarded for this purpose as charged on an amount so far as— (a) the amount is excluded, reduced or offset for the purposes of the tax by any exemption, exclusion, relief or credit that— (i) applies specifically to all or part of the amount (as opposed to amounts of a capital nature generally), or (ii) arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or (b) the tax is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications). (11) For the purposes of subsections (6) to (10) a “qualifying capital tax” means— (a) capital gains tax or the charge to corporation tax in respect of chargeable gains, or (b) any tax chargeable under the law of a territory outside the United Kingdom that corresponds to a United Kingdom tax mentioned in paragraph (a), but does not include any tax chargeable at a nil rate.

Hybrid payee deduction/non-inclusion mismatches

11

In section 259GB (hybrid payee deduction/non-inclusion mismatches and their extent), after subsection (4) insert—

(4A) In applying subsection (4)(b) in a case where the payee is a partnership, it is to be assumed that no amount of ordinary income arises to the payee, by reason of the payment or quasi-payment, if— (a) a partner in the partnership is entitled to the amount, and (b) having regard only to— (i) the law of the territory where the partnership is established, and (ii) the law of the territory where the partner is resident for tax purposes or, if the partner is not resident anywhere for tax purposes, where the partner is established, the payee would not be regarded as a hybrid entity. (4B) In subsection (4A) “partnership” has the meaning given by section 259NE(4).

Multinational payee deduction/non-inclusion mismatches

12

In section 259HB (multinational payee deduction/non-inclusion mismatches and their extent), after subsection (2) insert—

(2A) The excess is to be taken (so far as would not otherwise be the case) to arise for the purposes of subsection (1)(b) by reason of a payee being a multinational company so far as it would not arise if it is assumed— (a) that the company is not regarded, under the law of the parent jurisdiction, the PE jurisdiction or any other territory, as carrying on a business in the PE jurisdiction through a permanent establishment in that jurisdiction, and (b) that, for tax purposes under the law of the parent jurisdiction, all amounts of ordinary income arising, by reason of the payment or quasi-payment, to the company are regarded as arising to it in that jurisdiction and nowhere else.

Hybrid entity double deduction mismatches: use of restricted deduction

13

In section 259IC(4) (counteraction where the hybrid entity is within the charge to corporation tax), for the words from “unless” to the end substitute

unless it is deducted from— (c) dual inclusion income for that period, or (d) section 259ID income for that period.

14

After section 259IC insert—

(259ID) (1) This section applies where— (a) section 259IC applies, (b) the restricted deduction exceeds the dual inclusion income of the hybrid entity (if any) for the hybrid entity deduction period, and (c) conditions A to D are met. (2) Condition A is that— (a) the investor in the hybrid entity makes a payment to the hybrid entity, and (b) no amount is deductible, under the law of the investor jurisdiction, from the income of the investor in respect of the payment. (3) Condition B is that, as a result of the payment, an amount of ordinary income arises to the hybrid entity for the hybrid entity deduction period. (4) Condition C is that the payment is made in direct consequence of a payment made to the investor by a person (“the unrelated party”) who is not related (see section 259NC) to the investor or the hybrid entity. (5) Condition D is that, as a result of the payment made by the unrelated party, an amount of ordinary income arises to the investor. (6) For the purposes of section 259IC “section 259ID income” is an amount of income of the hybrid entity equal to the lesser of— (a) the amount of the payment made by the investor to the hybrid entity, and (b) the amount of the payment made by the unrelated party to the investor.

Imported mismatches: dual inclusion income

15

In section 259K (overview of Chapter 11), after subsection (4) insert—

(4A) Section 259KD provides for relief where an amount is deducted from dual inclusion income.

16

• (1) Section 259KC (denial of the relevant deduction in relation to imported mismatch payments) is amended as follows.

• (2) After subsection (2) insert—

(2A) But any reduction under this section has effect subject to section 259KD (deductions from dual inclusion income).

• (3) In subsections (4)(a) and (7)(a), for “subsection (6)(a)” substitute “ section 259KA(6)(a) ”.

17

After section 259KC insert—

(259KD) (1) If— (a) section 259KA(6)(a) applies as a result of any of sub-paragraphs (iii) to (vii), or (b) section 259KA(6)(b) applies, a reduction under section 259KC is not to exceed the relevant net amount. (2) For the purposes of this section “the relevant net amount” means— (a) if section 259KA(6)(a)(iii), (iv), (v) or (vi) applies, the amount which, if Chapter 5, 7, 8 or 9 applied to the tax treatment of any person in respect of the mismatch payment, could not be deducted from that person's income under that Chapter (ignoring the effect of any of the carry-forward provisions), (b) if section 259KA(6)(a)(vii) applies, the amount by which the dual territory double deduction of the company mentioned in section 259KB(2) for a deduction period exceeds its dual inclusion income for that period, or (c) if section 259KA(6)(b) applies, the amount by which the excessive PE deduction of the company mentioned in section 259KB(4) for the permitted taxable period mentioned there exceeds its dual inclusion income for that period. (3) In subsection (2)(a) “the carry-forward provisions” means— (a) section 259EC(3) (hybrid payer deduction/non-inclusion mismatches), (b) section 259IB(3) to (5) (hybrid entity double deduction mismatches: investor within charge to corporation tax), and (c) section 259IC(5) to (7) (hybrid entity double deduction mismatches: hybrid entity within charge to corporation tax). (4) In subsection (2)(b) “dual inclusion income” of a company for a deduction period (that is to say, a period for which the dual territory double deduction is deducted as mentioned in section 259KB(2)(a)) means an amount that is both— (a) ordinary income of the company for that period for the purposes of a tax charged as mentioned in section 259KB(2)(a), and (b) ordinary income of the company for a permitted taxable period for the purposes of a tax charged as mentioned in section 259KB(2)(b). (5) A taxable period of the company is “permitted” for the purposes of subsection (4)(b) if— (a) the period begins before the end of 12 months after the end of the deduction period, or (b) where that period begins after that— (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period. (6) In subsection (2)(c) “dual inclusion income” of a company for a period means an amount that is both— (a) ordinary income of the company for that period for the purposes of a tax charged under the law of the PE jurisdiction, and (b) ordinary income of the company for a permitted taxable period for the purposes of a tax charged under the law of the parent jurisdiction. (7) A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (6) if— (a) the period begins before the end of 12 months after the end of the period mentioned in paragraph (a) of that subsection, or (b) where the period begins after that— (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.

Adjustments in light of subsequent events: accounting treatment

18

After section 259LA insert—

(259LB) (1) This section applies where— (a) a payment or quasi-payment gives rise to a debit of a company that is recognised for accounting purposes, (b) a relevant deduction of the company in respect of some or all of the debit is reduced by any provision of this Part, (c) there is a reversal of some or all of the debit by a credit of the company that is recognised for accounting purposes after the end of the payment period, and (d) the credit is brought into account for corporation tax purposes. (2) Such consequential adjustments as are just and reasonable may be made in respect of so much of the debit as gives rises to the relevant deduction and as is reversed by the credit. (3) The adjustments may be made (whether or not by an officer of Revenue and Customs) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise. (4) The power to make adjustments by virtue of this section may be exercised despite any time limit imposed by or under any enactment.

Commencement

19

• (1) The amendments made by paragraphs 2(b), 3 to 6 and 12—

• (a) have effect, in the case of their application to Chapter 6 of Part 6A of TIOPA 2010, in relation to excessive PE deductions in relation to which the relevant PE period begins on or after 1 January 2018,

• (b) have effect, in the case of their application to Chapter 9 or 10 of that Part, in relation to accounting periods beginning on or after that date, and

• (c) have effect, in the case of their application to any other Chapter of that Part, in relation to—

• (i) payments made on or after date, or

• (ii) quasi-payments in relation to which the payment period begins on or after that date.

• (2) For the purposes of sub-paragraph (1)(a), (b) and (c)(ii), where there is a straddling period—

• (a) so much of the straddling period as falls before 1 January 2018, and so much of it as falls on or after that date, are to be treated as separate accounting periods or separate taxable periods (as the case may be), and

• (b) if it is necessary to apportion an amount for the straddling period to the two separate periods, it is to be apportioned—

• (i) on a time basis according to the respective length of the separate periods, or

• (ii) if that would produce a result that is unjust or unreasonable, on a just and reasonable basis.

• (3) A “straddling period” means an accounting period or payment period (as the case may be) beginning before 1 January 2018 and ending on or after that date.

• (4) Part 6A of TIOPA 2010 has effect, and is to be deemed always to have had effect, with the amendments set out in paragraphs 2(a), 7 to 11 and 13 to 18.

SCHEDULE 8

PART 1 — Amendments of Part 10 of TIOPA 2010

Introductory

1

Part 10 of TIOPA 2010 (corporate interest restriction) is amended as follows.

Hedging of tax-interest expense amounts or tax-interest income amounts etc

2

• (1) Section 384 (relevant derivative contract debits) is amended as follows.

• (2) In subsection (3), for paragraph (c) substitute—

(c) it is in respect of a risk arising in the ordinary course of a trade (other than a risk arising in the ordinary course of a financial trade) where the derivative contract was entered into wholly for reasons unrelated to the capital structure of the worldwide group (or any member of the worldwide group).

• (3) After subsection (3) insert—

(3A) For the purposes of subsection (3)(c) a debit is in respect of a risk arising in the ordinary course of “a financial trade” only so far as the risk relates to an amount which is or is likely to be— (a) a tax-interest expense amount, or (b) a tax-interest income amount, of the company in any relevant accounting period.

3

• (1) Section 387 (relevant derivative contract credits) is amended as follows.

• (2) In subsection (3), for paragraph (c) substitute—

(c) it is in respect of a risk arising in the ordinary course of a trade (other than a risk arising in the ordinary course of a financial trade) where the derivative contract was entered into wholly for reasons unrelated to the capital structure of the worldwide group (or any member of the worldwide group).

• (3) After subsection (3) insert—

(3A) For the purposes of subsection (3)(c) a credit is in respect of a risk arising in the ordinary course of “a financial trade” only so far as the risk relates to an amount which is or is likely to be— (a) a tax-interest expense amount, or (b) a tax-interest income amount, of the company in any relevant accounting period.

4

• (1) Section 411 (“relevant expense amount” and “relevant income amount”) is amended as follows.

• (2) In subsection (1)(e), for sub-paragraph (iii) substitute—

(iii) losses in respect of risks arising in the ordinary course of a trade (other than risks arising in the ordinary course of a financial trade) where the derivative contract was entered into wholly for reasons unrelated to the capital structure of the worldwide group (or any member of the worldwide group);

.

• (3) In subsection (2)(d), for sub-paragraph (iii) substitute—

(iii) gains in respect of risks arising in the ordinary course of a trade (other than risks arising in the ordinary course of a financial trade) where the derivative contract was entered into wholly for reasons unrelated to the capital structure of the worldwide group (or any member of the worldwide group);

.

5

In section 412 (section 411: interpretation), after subsection (3) insert—

(3A) For the purposes of section 411(1)(e)(iii) and (2)(d)(iii) losses or gains are in respect of risks arising in the ordinary course of “a financial trade” only so far as the risks relate to amounts which are or are likely to be— (a) relevant expense amounts, or (b) relevant income amounts, of the worldwide group for any period of account.

Group ratio: leaving R&D expenditure credits out of account

6

In section 416 (meaning of “the group-EBITDA”), after subsection (2) insert—

(2A) An amount is not to be taken into account in calculating a worldwide group's profit before tax for the purposes of subsection (2) if it is, or relates to, an R&D expenditure credit within the meaning of section 104A of CTA 2009.

Public infrastructure

7

• (1) Section 433 (meaning of “qualifying infrastructure company”) is amended as follows.

• (2) In subsection (1)(c), for “(see subsection (11))” substitute “ (see subsections (11) and (12)) ”.

• (3) In subsection (11)(a), for “activity that the company carries on” substitute “ source of income that the company has ”.

• (4) After subsection (11) insert—

(12) In determining whether the condition in subsection (11)(a) is met in the case of a company not resident in the United Kingdom in an accounting period, a source of income of the company is ignored if, having regard to all the circumstances, it is reasonable to regard as insignificant the amount of income arising in the accounting period from the source.

8

• (1) Section 434 (elections under section 433) is amended as follows.

• (2) In subsection (1)(a), for “the beginning” substitute “ the end ”.

• (3) In subsection (5), after paragraph (a) (but before the “and” at the end of it) insert—

(ab) the time of the transfer falls in a period of account of a worldwide group of which both the transferor and transferee are members,

.

9

• (1) Section 436 (meaning of “qualifying infrastructure activity”) is amended as follows.

• (2) In subsection (2)(d), for “(see subsection (10))” substitute “ (see subsections (10) and (10A)) ”.

• (3) After subsection (10) insert—

(10A) In determining whether the condition in subsection (10)(b) is met in relation to a company not resident in the United Kingdom at any time, a source of income of the company is ignored if, having regard to all the circumstances, it is reasonable to regard as insignificant the amount of income arising from the source for the accounting period including that time.

10

In section 443 (interest capacity for group with qualifying infrastructure company etc), for subsection (2) substitute—

(2) There is an exception to the general rule (see subsections (4) and (5)) which— (a) applies if no tax-interest income amounts of any qualifying infrastructure company (“Q”) which is a member of the group for the period are receivable from another qualifying infrastructure company which is not a member of the group for the period but is a related party of Q at any time in that period, and (b) depends on the comparison set out in subsection (3), and, for the purposes of paragraph (a), tax-interest income amounts are to be ignored if, having regard to all the circumstances, it is reasonable to regard the amounts as insignificant.

11

In section 444 (joint venture companies), in subsection (1), after “a qualifying infrastructure company (“the joint venture company”)” insert “ which is the ultimate parent of a worldwide group at all times in that period ”.

Identifying members of a worldwide group

12

After section 454 insert—

(454A) (1) This section applies where— (a) an entity (“S”) is a member of a worldwide group as a result of one or more other members of the group managing S and holding rights or interests in relation to S, (b) the entity managing S does so in the ordinary course of carrying on a business of providing investment management services, and (c) the management of S is not coordinated to any extent with the management by any person of any other entity. (2) For the purposes of this Part— (a) the group does not include entities that are subsidiaries of S, and (b) accordingly, none of those entities is regarded as a consolidated subsidiary of any member of the group. (3) In this section “subsidiary” has the meaning given by international accounting standards.

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest restriction returns

14

• (1) Paragraph 9 of Schedule 7A (extended period for submission of full return in place of abbreviated return) is amended as follows.

• (2) In sub-paragraph (1)(a), omit “abbreviated”.

• (3) In sub-paragraph (2)—

• (a) for “a full interest restriction return” substitute “ an interest restriction return ”, and

• (b) after “paragraph 8” insert “ which is a full interest restriction return ”.

• (4) In the italic heading before that paragraph, for “in place of abbreviated return” substitute “ for period where no restriction ”.

15

• (1) Paragraph 70 of Schedule 7A (cases where company treated as amending return) is amended as follows.

• (2) In sub-paragraph (1), for “is treated as having amended” substitute “ must amend ”.

• (3) After that sub-paragraph insert—

(1A) The amendment must be made before whichever is the later of— (a) the end of the period of 3 months beginning with the day on which the interest restriction return was submitted, or (b) the time limit given by paragraph 15(4) of Schedule 18 to FA 1998.

• (4) For the italic heading before that paragraph substitute “ Other cases where company must amend its return etc ”.

16

After paragraph 70 of Schedule 7A insert—

(70A) (1) This paragraph applies if a company— (a) is required, as a result of paragraph 69(2), (3) or (6) or 70(1), to make an amendment of its company tax return for an accounting period, and (b) has failed to make the required amendment by the amendment deadline. (2) The company is liable to a penalty of £500. (3) At any time before the end of the period of 12 months beginning with the amendment deadline, an officer of Revenue and Customs may, to the best of the officer's information and belief, make the required amendments of the company tax return. (4) If an officer of Revenue and Customs amends the company tax return under sub-paragraph (3), the company may amend the return so as to correct the amendments made by the officer. (5) An amendment under sub-paragraph (4) must be made before the end of the period of 3 months beginning with the day on which the officer amends the return under sub-paragraph (3) (and the time limit for amending a company tax return given by paragraph 15(4) of Schedule 18 to FA 1998 is subject to this sub-paragraph). (6) Paragraph 29(3) to (7) apply in relation to a penalty under this paragraph as they apply in relation to a penalty under paragraph 29 but as if the reference in paragraph 29(4) to the filing date were to the amendment deadline. (7) In this paragraph “the amendment deadline” means the end of the period for the making of the amendment given by paragraph 69(2), (4) or (6) or 70(1A).

17

• (1) Paragraph 71 of Schedule 7A (regulations for purposes of paragraph 70 etc) is amended as follows.

• (2) In sub-paragraph (1)(a), for “paragraph 70” substitute “ paragraph 70(2) ”.

• (3) In the italic heading before that paragraph, for “paragraph 70” substitute “ paragraph 70(2) ”.

Other amendments

18

In section 378 (disallowed tax-interest expense amounts carried forward), in subsections (3) and (6), omit “the later accounting period or”.

19

In section 393(5)(a) (amount of interest allowance for a period that is “available” in a later period), for “is made” substitute “ has effect ”.

20

• (1) Section 411 (meaning of “relevant expense amount” and “relevant income amount”) is amended as follows.

• (2) In subsection (1)—

• (a) in paragraph (b), after “loan relationship” insert “ or related transaction ”, and

• (b) in paragraph (h), after “debt factoring” insert “ or any similar transaction ”.

• (3) In subsection (2)(f), after “debt factoring” insert “ or any similar transaction ”.

21

• (1) Section 412 (section 411: interpretation) is amended as follows.

• (2) In subsection (1)—

• (a) in the opening words, after “a loan relationship” insert “ or related transaction ”,

• (b) after paragraph (a) insert—

(ab) in entering into or giving effect to, or attempting to enter into or give effect to, the related transaction,

,

• (c) in paragraph (b), after “the loan relationship” insert “ or as a result of the related transaction ”, and

• (d) in paragraph (c), after “the loan relationship” insert “ or in accordance with the related transaction ”.

• (3) In subsection (6)—

• (a) in paragraph (a), for “(1)(c)” substitute “ (1)(b) and (c) ”, and

• (b) in paragraph (b), for “(1)(e)” substitute “ (1)(e) and (f) ”.

Commencement

22

• (1) The amendments made by paragraphs 2 to 5, 10 and 13 have effect in relation to periods of account of worldwide groups that begin on or after 1 January 2018.

• (2) The following provisions apply if—

• (a) financial statements of a worldwide group are drawn up by or on behalf of the ultimate parent in respect of a period that begins before, and ends on or after, 1 January 2018,

• (b) the period in respect of which the financial statements are drawn up is 18 months or less, and

• (c) the financial statements are drawn up before the end of the period of 30 months beginning with the period in respect of which they are drawn up.

• (3) In this paragraph—

• (a) “the group's actual financial statements” means the financial statements mentioned in sub-paragraph (2), and

• (b) “the straddling period of account” means the period in respect of which those financial statements are drawn up.

• (4) For the purposes of Part 10 of TIOPA 2010, the group's actual financial statements are treated as not having been drawn up.

• (5) Instead, financial statements of the worldwide group are treated for those purposes as having been drawn up in respect of each of the following periods—

• (a) the period beginning at the time the straddling period of account begins and ending with 31 December 2017, and

• (b) the period beginning with 1 January 2018 and ending at the time the straddling period of account ends.

• (6) If condition C or D in section 481 of TIOPA 2010 is met in relation to the group's actual financial statements, the financial statements treated as drawn up by sub-paragraph (5) are treated as drawn up in accordance with the generally accepted accounting principles and practice with which the group's actual financial statements were drawn up.

• (7) If neither of those conditions is met in relation to the group's actual financial statements, the financial statements treated as drawn up by sub-paragraph (5) are IAS financial statements.

• (8) If, for the purpose of determining amounts recognised in the financial statements treated as drawn up by sub-paragraph (5), it is expedient to apportion any amount that is recognised in the group's actual financial statements, the apportionment is to be made in accordance with section 1172 of CTA 2010 (apportionment on a time basis).

• (9) But if it appears that apportionment in accordance with that section would work unjustly or unreasonably, the apportionment is to be made on a just and reasonable basis.

• (10) Expressions used in this paragraph and in Part 10 of TIOPA 2010 have the same meaning in this paragraph as they have in that Part.

23

• (1) Part 10 of TIOPA 2010 has effect, and is to be deemed always to have had effect, with the amendments set out in paragraphs 6 to 9, 12 and 18 to 21.

• (2) But, in the case of the amendment set out in paragraph 6 or 12, the reporting company of the worldwide group for any period of account beginning before 1 January 2018 may make an election for the amendment to have no effect in relation to the period of account.

• (3) Paragraph 12 of Schedule 7A to TIOPA 2010 applies to an election under sub-paragraph (2).

• (4) Expressions used in this paragraph and in Part 10 of TIOPA 2010 have the same meaning in this paragraph as they have in that Part.

24

The amendment made by paragraph 11 has effect in relation to accounting periods beginning on or after 1 January 2018.

25

The amendments made by paragraph 15 have effect in relation to interest restriction returns whenever submitted.

26

The amendment made by paragraph 16 does not have effect in relation to any case where a company tax return is amended before the day on which this Act is passed.

PART 2 — Other amendments

27

In section 9A of CTA 2010 (designated currency of a UK resident investment company), in subsection (7)—

• (a) in the definition of “financial statements of the group”, for “(within the meaning of section 351 of TIOPA 2010)” substitute “ (and for this purpose “subsidiaries” has the meaning given by international accounting standards) ”, and

• (b) for the definition of “Y's group” substitute—

“Y's group” means a worldwide group of which Y is the ultimate parent within the meaning of Part 10 of TIOPA 2010,

.

28

The amendment made by paragraph 27 has effect in relation to elections that are made on or after 1 January 2018.

SCHEDULE 9

PART 1 — Chargeable equity and liabilities

Introductory

1

Part 4 of Schedule 19 to FA 2011 (bank levy: chargeable equity and liabilities) is amended as follows.

Chargeable equity and liabilities: relevant groups and relevant entities

2

For paragraphs 15 to 23 (and the italic heading preceding paragraph 15) substitute—

(15) (1) This paragraph applies if the bank levy is charged as provided for by paragraph 4 (groups). (2) The amount of the chargeable equity and liabilities of the relevant group is the total of— (a) the UK-based equity and liabilities, as at the end of the chargeable period, of— (i) each UK sub-group, and (ii) each chargeable UK resident entity, and (b) if a relevant foreign bank is a member of the relevant group, the UK allocated equity and liabilities of that bank as at the end of the chargeable period (see paragraph 24). (15A) (1) This paragraph applies if the bank levy is charged as provided for by paragraph 5 (entities which are not members of groups). (2) The amount of the chargeable equity and liabilities of the relevant entity is— (a) in the case of a UK resident bank or building society, the amount of the UK-based equity and liabilities of the entity, as at the end of the chargeable period, or (b) in the case of a relevant foreign bank, the amount of the UK allocated equity and liabilities of that bank as at the end of the chargeable period (see paragraph 24). (15B) “UK sub-group” means a group of entities— (a) which is a group for the purposes of those provisions of international accounting standards which relate to the preparation of consolidated financial statements, (b) which has as its parent or parent undertaking for the purposes of those provisions an entity which is— (i) if the relevant group is a relevant non-banking group, a UK resident bank, or (ii) in any other case, a UK resident entity, (c) the members of which, for the purposes of those provisions, are all members of the relevant group, (d) in respect of which consolidated financial statements for the chargeable period are prepared under international accounting standards, and (e) the members of which are not members of any larger group of entities, in respect of which the conditions in paragraphs (a) to (c) are met, for which such financial statements are prepared. (15C) (1) “Chargeable UK resident entity” means a UK resident entity which— (a) is a member of the relevant group, but is not a member of a UK sub-group, and (b) if the relevant group is a relevant non-banking group, is a banking entity. (2) A UK resident entity is a “banking entity” for the purposes of sub-paragraph (1) if it is— (a) a UK resident bank, or (b) a subsidiary of a UK resident bank. (3) In sub-paragraph (2)(b) “subsidiary” has the meaning given by those provisions of international accounting standards which relate to the preparation of consolidated financial statements. (15D) (1) This paragraph applies if— (a) the bank levy is charged as provided for by paragraph 4 (groups), and (b) a UK resident entity, which is a member of the relevant group, has a foreign permanent establishment. (2) For the purposes of this Part of this Schedule, a UK resident entity “has a foreign permanent establishment” if the entity carries on a trade in a territory outside the United Kingdom through a permanent establishment (the “foreign permanent establishment”) in that territory. (3) The relevant group's responsible member may, for the purposes of determining the UK-based equity and liabilities of a UK sub-group or a chargeable UK resident entity, elect to disregard the non-UK allocated equity and liabilities attributable to— (a) any or all of the foreign permanent establishments of any or all of the UK resident entities which are members of the UK sub-group; (b) any or all of the foreign permanent establishments of the chargeable UK resident entity. (4) See paragraph 15Z1 for further provision about non-UK allocated equity and liabilities. (15E) (1) This paragraph applies if— (a) the bank levy is charged as provided for by paragraph 5 (entities which are not members of groups), and (b) the relevant entity is a UK resident entity which has a foreign permanent establishment. (2) The relevant entity may, for the purposes of determining its UK-based equity and liabilities, elect to disregard the non-UK allocated equity and liabilities attributable to any or all of its foreign permanent establishments. (15F) (1) An election made under paragraph 15D or 15E in respect of a UK resident entity— (a) must be made in the form and manner specified by the Commissioners for Her Majesty's Revenue and Customs, (b) must contain such information and declarations as the Commissioners may require, and (c) may be revoked at any time— (i) in the case of an election under paragraph 15D, by the relevant group's responsible member; (ii) in the case of an election under paragraph 15E, by the relevant entity. (2) In this Schedule, “designated FPE entity” means a UK resident entity in respect of which an election is made under paragraph 15D or 15E. (15G) (1) This paragraph applies, in relation to a UK resident entity, for the purposes of paragraphs 15H(2), 15L(3) and 15Z1. (2) The assets, equity and liabilities, as at the end of the chargeable period, of the entity are to be determined by reference to— (a) the amounts recognised in the entity's financial statements for the chargeable period as prepared under international accounting standards, or (b) if no such financial statements are prepared, the amounts which would have been so recognised had such financial statements been prepared under international accounting standards. (15H) (1) This paragraph applies in relation to a UK resident entity, other than a designated FPE entity, which is— (a) where the bank levy is charged as provided for by paragraph 4 (groups), a chargeable UK resident entity; (b) where the bank levy is charged as provided for by paragraph 5 (entities which are not members of groups), the relevant entity. (2) To determine the UK-based equity and liabilities of the UK resident entity, as at the end of the chargeable period— (a) determine the amount of the entity's equity and liabilities, in accordance with paragraph 15G(2), and (b) adjust that amount in accordance with paragraph 15N. (15I) (1) This paragraph applies in relation to a designated FPE entity which is— (a) where the bank levy is charged as provided for by paragraph 4 (groups), a chargeable UK resident entity; (b) where the bank levy is charged as provided for by paragraph 5 (entities which are not members of groups), the relevant entity. (2) To determine the UK-based equity and liabilities of the entity, as at the end of the chargeable period, take Steps 1 to 5 in paragraph 15Z1. (15J) (1) This paragraph applies in relation to a UK sub-group if— (a) each member of the UK sub-group is a UK resident entity, (b) none of those members is a designated FPE entity, and (c) the relevant group's responsible member has not made an entity-by-entity election (see paragraph 15L) in relation to the UK sub-group. (2) The assets, equity and liabilities, as at the end of the chargeable period, of the UK sub-group are to be determined by reference to the amounts recognised in the sub-group's consolidated financial statements for the chargeable period. (3) To determine the UK-based equity and liabilities of the UK sub-group, as at the end of the chargeable period— (a) determine the amount of the UK sub-group's equity and liabilities in accordance with sub-paragraph (2), and (b) adjust that amount in accordance with paragraph 15N. (15K) (1) This paragraph applies in relation to a UK sub-group if— (a) at least one member of the UK sub-group is— (i) a non-UK resident entity, or (ii) a designated FPE entity, and (b) the relevant group's responsible member has not made an entity-by-entity election (see paragraph 15L) in relation to the UK sub-group. (2) In this Schedule, “residual UK sub-group” means, in relation to a UK sub-group to which this paragraph applies, the group of entities consisting of the members of the UK sub-group which— (a) are UK resident entities, but (b) are not designated FPE entities. (3) The assets, equity and liabilities of the residual UK sub-group are to be determined by reference to the amounts which, if financial statements had been prepared for the residual UK sub-group for the chargeable period under international accounting standards, would have been recognised in those statements. (4) The amount of the UK-based equity and liabilities of the UK sub-group, as at the end of the chargeable period, is the total amount of— (a) the equity and liabilities of the residual UK sub-group as at the end of that period, adjusted in accordance with paragraph 15N, and (b) the adjusted equity and liabilities of each designated FPE entity which is a member of the UK sub-group (see Step 5 in paragraph 15Z1). (15L) (1) If the relevant group's responsible member makes an election under this paragraph (an “entity-by-entity election”) in relation to a UK sub-group, the UK-based equity and liabilities of the UK sub-group are to be determined in accordance with this paragraph. (2) The amount of the UK-based equity and liabilities of the UK sub-group as at the end of the chargeable period is the total amount of— (a) the adjusted equity and liabilities of each UK resident entity, other than a designated FPE entity, which is a member of the UK sub-group, and (b) the adjusted equity and liabilities of each designated FPE entity which is a member of the UK sub-group (see Step 5 in paragraph 15Z1). (3) To determine the “adjusted equity and liabilities” of a UK resident entity for the purposes of sub-paragraph (2)(a)— (a) determine the amount of the entity's equity and liabilities in accordance with paragraph 15G(2), and (b) adjust that amount in accordance with paragraph 15N. (4) An election made under this paragraph has effect in relation to the chargeable period during which the election is made and each subsequent chargeable period (unless it is revoked under sub-paragraph (6)(c)). (5) But an election under this paragraph has no effect in relation to a UK sub-group for a chargeable period if the purpose, or one of the main purposes, of making the election is to avoid or reduce a charge or assessment to the bank levy. (6) An election made under this paragraph in respect of the relevant group— (a) must be made in the form and manner specified by the Commissioners for Her Majesty's Revenue and Customs, (b) must contain such information and declarations as the Commissioners may require, and (c) may be revoked by the relevant group's responsible member at any time. (15M) For the purposes of paragraphs 15N to 15Z, references to a “chargeable UK sub-group or entity” are references to— (a) in a case to which paragraph 15H or 15L(3) applies, the UK resident entity, (b) in a case to which paragraph 15J applies, the UK sub-group, (c) in a case to which paragraph 15K applies, the residual UK sub-group, or (d) in a case to which paragraph 15Z1 applies, the designated FPE entity. (15N) (1) To adjust the amount of the equity and liabilities of a chargeable UK sub-group or entity for the purposes of paragraph 15H(2)(b), 15J(3)(b), 15K(4)(a), 15L(3)(b) or Step 3 in paragraph 15Z1, take the following steps— - Step 1 Take the amount of the equity and liabilities of the chargeable UK sub-group or entity, other than excluded equity and liabilities, as at the end of the chargeable period. - Step 2 Adjust that amount in accordance with paragraphs 15O to 15U (so far as applicable). - Step 3 If paragraph 15X (loss absorbing instruments issued by overseas subsidiaries) applies in relation to the chargeable UK sub-group or entity, reduce the adjusted amount (but not below nil) by the amount determined under that paragraph (subject to sub-paragraph (2)). - Step 4 Subject to sub-paragraph (2), reduce the amount given by Step 3 (but not below nil) by— 1. the amount of the chargeable UK sub-group or entity's high quality liquid assets as at the end of that period, other than— 1. any asset which, for the purposes of an adjustment at Step 2, is an asset to which paragraph 15U(1) applies; 2. any asset which is taken into account in determining the amount of a reduction under paragraph 15X for the purposes of Step 3; 3. in a case where the bank levy is charged as provided for by paragraph 4 (groups) and a relevant foreign bank is a member of the relevant group, any asset which for the purposes of Step 3 of paragraph 24(1) is an asset to which paragraph 27D(1) applies; and 2. if paragraph 15Z (high quality liquid assets) applies, the amount determined under that paragraph. (2) Where any amount (“A”) within Step 3, or within paragraph (a) or (b) of Step 4, is used to reduce short term liabilities, the amount of the reduction is determined as if A were an amount equal to half of A. (15O) (1) This paragraph applies if— (a) the bank levy is charged as provided for by paragraph 4 (groups), and (b) the members of a UK sub-group which are UK resident entities are also members of at least one larger unconsolidated sub-group. (2) A group of entities is an “unconsolidated sub-group” if— (a) the conditions in paragraph 15B(a) to (c) and (e) are met in respect of the group, but (b) the condition in paragraph 15B(d) (consolidated financial statements) is not met in respect of the group. (3) Any equity of the UK resident entities which are members of the UK sub-group is to be left out so far as it would have been eliminated under normal consolidation procedures, had consolidated financial statements for the larger or largest unconsolidated sub-group been prepared for the chargeable period under international accounting standards. (15P) (1) This paragraph applies if the bank levy is charged as provided for by paragraph 4 (groups). (2) Sub-paragraph (3) applies in relation to an entity if— (a) it is a chargeable UK resident entity (whether or not a designated FPE entity), and (b) it is a member of at least one unconsolidated sub-group (see paragraph 15O(2)). (3) Any equity of the entity is to be left out so far as it would have been eliminated under normal consolidation procedures, had consolidated financial statements for the unconsolidated sub-group, or the largest unconsolidated sub-group of which the entity is a member, been prepared for the chargeable period under international accounting standards. (15Q) (1) This paragraph applies if the bank levy is charged as provided for by paragraph 4 (groups). (2) Sub-paragraph (3) applies in relation to a UK resident entity if— (a) it is a member of a UK sub-group in respect of which an entity-by-entity election has been made under paragraph 15L (whether or not it is a designated FPE entity), or (b) it is a designated FPE entity and a member of a UK sub-group in respect of which no entity-by-entity election has been made. (3) Any equity of the entity is to be left out so far as it would have been eliminated under normal consolidation procedures under international accounting standards, but disregarding from the consolidation any non-UK resident entities. (15R) (1) This paragraph applies if the bank levy is charged as provided for by paragraph 4 (groups). (2) The following liabilities of a chargeable UK sub-group or entity are to be left out— (a) UK connected liabilities to a chargeable UK resident entity which is a member of the relevant group, (b) UK connected liabilities to a UK sub-group of the relevant group, (c) UK connected liabilities to a relevant foreign bank which is a member of the relevant group, and (d) in the case of an entity to which paragraph 15Q applies, UK connected liabilities of the entity to another UK resident entity which is a member of the same UK sub-group. (3) For the purposes of sub-paragraph (2)(a) and (d), liabilities to a UK resident entity are “UK connected liabilities” except so far as the entity's assets corresponding to the liabilities are assets of a foreign permanent establishment in respect of which an election under paragraph 15D has been made (as determined at Step 2 in paragraph 15Z1). (4) For the purposes of sub-paragraph (2)(b), liabilities to a UK sub-group are “UK connected liabilities” except so far as the sub-group's assets corresponding to the liabilities are— (a) assets of a non-UK resident entity, or (b) assets of a foreign permanent establishment in respect of which an election under paragraph 15D has been made (as determined at Step 2 in paragraph 15Z1). (5) For the purposes of sub-paragraph (2)(c), liabilities to a relevant foreign bank are “UK connected liabilities” so far as the bank's assets corresponding to the liabilities are assets of the permanent establishment through which the bank carries on a trade in the United Kingdom as determined at Step 2 in paragraph 24(1). (15S) (1) Paragraph 15U applies if— (a) the bank levy is charged as provided for by paragraph 4 (groups), (b) an entity (“M”) within sub-paragraph (5) has liabilities to another entity (“N”) not within that sub-paragraph (“M's liabilities”), (c) M, or another member of the relevant group, recognises, as assets, amounts (“N's liabilities”) that are due to any member of the relevant group from N or another entity not within sub-paragraph (5), (d) there is in place an agreement which makes net settlement provision, and (e) that provision is legally effective and enforceable. (2) In sub-paragraph (1)(d), “net settlement provision” means provision for there to be a single net settlement— (a) if a netting event occurs, or (b) at the option of M or N, if a netting event occurs. (3) The reference in sub-paragraph (2) to a “single net settlement” is a reference to a single net settlement of— (a) all M's liabilities, and liabilities of other entities within sub-paragraph (5), to N or another entity which is not within that sub-paragraph (so far as covered by the provision mentioned in sub-paragraph (1)(d)), and (b) all N's liabilities (so far as covered by that provision). (4) But a provision for there to be single net settlement— (a) at the option of M, but not at the option of N, if a netting event occurs, or (b) at the option of N, but not at the option of M, if a netting event occurs, is not to be treated as a net settlement provision for the purposes of sub-paragraph (1)(d). (5) An entity is within this sub-paragraph if it is — (a) a UK resident entity which is a member of a UK sub-group, or (b) a chargeable UK resident entity. (6) For the purposes of sub-paragraph (1)— (a) “agreement” includes an agreement which forms part of a multi-lateral agreement, arrangement or trading facility, (b) if N is a relevant foreign bank which is a member of the relevant group, liabilities of M to N are to be ignored so far as N recognises assets in respect of those liabilities as assets of the permanent establishment through which N carries on a trade in the United Kingdom as determined at Step 2 in paragraph 24(1), (c) references to amounts due from N or another entity not within sub-paragraph (5) include securities provided by M, or another member of the relevant group, to N or another entity not within sub-paragraph (5) as collateral, but only where M or that other member recognises those securities in its balance sheet or statement of financial position, and (d) “a netting event occurs”— (i) in relation to M, if the insolvency or bankruptcy of M, or another entity within sub-paragraph (5) which has a liability covered by the provision mentioned in sub-paragraph (1)(d), gives rise to the termination of any arrangements under which such a liability arises, or (ii) in relation to N, if the insolvency or bankruptcy of N, or another entity not within sub-paragraph (5) which has a liability covered by the provision mentioned in sub-paragraph (1)(d), gives rise to the termination of any arrangements under which such a liability arises. (7) Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of sub-paragraph (6) and paragraph 15T(5) as it applies for the purposes of Chapter 10 of Part 6 of that Act. (15T) (1) Paragraph 15U also applies if— (a) the bank levy is charged as provided for by paragraph 5 (entities which are not members of groups), (b) the relevant entity (“M”) is a UK resident entity, (c) M has liabilities to another entity (“M's liabilities”), (d) M recognises, as assets, amounts due from that other entity (“N”) to M (“N's liabilities”), (e) there is in place an agreement between M and N which makes net settlement provision, and (f) that provision is legally effective and enforceable. (2) In sub-paragraph (1)(e), “net settlement provision” means provision for there to be a single net settlement— (a) if a netting event occurs, or (b) at the option of M or N, if a netting event occurs. (3) The reference in sub-paragraph (2) to a “single net settlement” is a reference to a single net settlement of— (a) all M's liabilities (so far as covered by the provision mentioned in sub-paragraph (1)(e)), and (b) all N's liabilities (so far as covered by that provision). (4) But a provision for there to be single net settlement— (a) at the option of M, but not at the option of N, if a netting event occurs, or (b) at the option of N, but not at the option of M, if a netting event occurs, is not to be treated as a net settlement provision for the purposes of sub-paragraph (1)(e). (5) For the purposes of sub-paragraph (1)— (a) “agreement” includes an agreement which forms part of a multi-lateral agreement, arrangement or trading facility, (b) references to amounts due from N include securities provided by M to N as collateral, but only where M recognises those securities in its balance sheet or statement of financial position, and (c) “a netting event occurs”— (i) in relation to M, if the insolvency or bankruptcy of M gives rise to the termination of any arrangements under which any liability covered by the provision mentioned in sub-paragraph (1)(e) arises, or (ii) in relation to N, if the insolvency or bankruptcy of N gives rise to the termination of any arrangements under which such a liability arises. (15U) (1) The amount of M's net settlement liabilities is to be reduced (but not below nil) by the amount of M's net settlement assets. (2) “M's net settlement liabilities” means M's liabilities so far as they— (a) are covered by the provision mentioned in paragraph 15S(1)(d) or 15T(1)(e), and (b) are not excluded liabilities. (3) “M's net settlement assets” means the assets of— (a) M, or (b) in a case within paragraph 15S, another member of the relevant group, so far as corresponding to N's net settlement liabilities. (4) But, in a case within paragraph 15S— (a) if N's net settlement liabilities include liabilities of a relevant foreign bank which is a member of the relevant group, X% (as determined at Step 2 in paragraph 24(1)) of the assets corresponding to the liabilities of the relevant foreign bank are to be disregarded for the purposes of sub-paragraph (3), and (b) if sub-paragraph (1) applies in relation to more than one entity within paragraph 15S(5), no part of an asset may be included in the net settlement assets of more than one such entity, and (c) if an asset, or part of an asset, is included for the purposes of paragraph 27D in the net settlement assets of a relevant foreign bank which is a member of the relevant group, the asset (or part) is not to be included in M's net settlement assets for the purposes of this paragraph. (5) “N's net settlement liabilities” means N's liabilities so far as they are covered by the provision mentioned in paragraph 15S(1)(d) or 15T(1)(e). (6) If M's net settlement liabilities exceed M's net settlement assets, and a proportion (A%) of those liabilities is long term liabilities and a proportion (B%) of those liabilities is short term liabilities, under sub-paragraph (1)— (a) the long term liabilities are reduced by A% of M's net settlement assets, and (b) the short term liabilities are reduced by B% of those assets. (15V) (1) This paragraph applies for the purposes of paragraphs 15W and 15X. (2) References to “loss absorbing instruments” are references to— (a) tier one capital equity and liabilities, and (b) other instruments, which satisfy a loss absorbing capacity or recapitalisation requirement. (3) In this paragraph and paragraphs 15W and 15X, “tier one capital equity and liabilities” means— (a) equity and liabilities which are “tier one equity and liabilities” within the meaning of paragraph 30, and (b) equity and liabilities that are (or are of a description) specified, or meet such conditions as may be specified, in regulations made by the Treasury. (4) A “loss absorbing capacity or recapitalisation requirement” is a requirement— (a) that is imposed, in relation to tier one capital equity and liabilities or other instruments issued by an entity, by an authority in the exercise of its regulatory functions under the law of the United Kingdom or of a country or territory outside the United Kingdom, and (b) that is (or is of a description) specified, or meets such conditions as may be specified, in regulations made by the Treasury. (15W) (1) Paragraph 15X applies in relation to a chargeable UK sub-group or entity if Conditions A to C are met. (2) Condition A is that the bank levy is charged as provided for by paragraph 4 (groups). (3) Condition B is that, as at the end of the chargeable period, the assets of a relevant group member include— (a) qualifying loss absorbing instruments, or (b) assets representing qualifying loss absorbing instruments. (4) A loss absorbing instrument is “qualifying” for the purposes of this paragraph and paragraph 15X if— (a) it is issued by a non-UK resident entity which is a subsidiary of a UK resident entity within sub-paragraph (5), and (b) such other conditions as may be specified in regulations made by the Treasury are met in respect of the instrument. (5) A UK resident entity is within this sub-paragraph if— (a) the entity is a member of the relevant group, and (b) if the relevant group is a relevant non-banking group, the entity is a UK resident bank or a subsidiary of a UK resident bank. (6) For the purposes of Condition B, “relevant group member” means— (a) the chargeable UK sub-group or entity, (b) another UK sub-group of the relevant group, or (c) a chargeable UK resident entity which is a member of the relevant group. (7) Condition C is that, as at the end of the chargeable period, the liabilities of the chargeable UK sub-group or entity include— (a) tier one capital equity and liabilities (other than tier one capital equity and liabilities excluded by paragraph 30), or (b) loss absorbing instruments, other than tier one capital equity and liabilities, in respect of which such conditions as may be specified in regulations made by the Treasury are met. (15X) (1) The amount within Step 3 in paragraph 15N(1) is the total of— (a) the amount of the relevant group member's assets which are, or represent, qualifying loss absorbing instruments within paragraph 15V(2)(a) as at the end of the chargeable period, so far as that amount does not exceed the liabilities amount within sub-paragraph (3), and (b) the amount of the relevant group member's assets which are, or represent, qualifying loss absorbing instruments within paragraph 15V(2)(b) as at the end of the chargeable period, so far as that amount does not exceed the liabilities amount within sub-paragraph (4). (2) Sub-paragraph (1) is subject to sub-paragraph (5). (3) The “liabilities amount” within this sub-paragraph is the total amount of the chargeable UK sub-group or entity's equity and liabilities, adjusted in accordance with Steps 1 and 2 in paragraph 15N(1), that are tier one capital equity and liabilities within paragraph 15W(7)(a). (4) The “liabilities amount” within this sub-paragraph is the total amount of the chargeable UK sub-group or entity's equity and liabilities, adjusted in accordance with Steps 1 and 2 in paragraph 15N(1), that are loss absorbing instruments within paragraph 15W(7)(b). (5) An asset (or part of an asset) of the relevant group member is to be disregarded for the purposes of sub-paragraph (1) if— (a) for the purposes of an adjustment at Step 2 in paragraph 15N(1), it is an asset (or part of an asset) to which paragraph 15U(1) applies, (b) in a case where this paragraph applies in relation to more than one chargeable UK sub-group or entity, the asset (or part) is taken into account in determining the amount within Step 3 in paragraph 15N(1) in relation to another chargeable UK sub-group or entity, or (c) in a case where a relevant foreign bank is a member of the relevant group, it is an asset (or part) to which paragraph 27D(1) applies for the purposes of Step 3 of paragraph 24(1). (15Y) (1) This paragraph makes provision about regulations under any provision of paragraph 15V or 15W. (2) The regulations may include different provision for different purposes. (3) The regulations are to be made by statutory instrument. (4) A statutory instrument containing the regulations is subject to annulment in pursuance of a resolution of the House of Commons. (15Z) (1) This paragraph applies where— (a) as at the end of the chargeable period, the assets of the chargeable UK sub-group or entity include a financial asset in respect of an advance of cash made— (i) in the case of a UK sub-group, by a member of that sub-group, or (ii) in any other case, by the entity, (b) that financial asset is not— (i) an asset which, for the purposes of an adjustment at Step 2 in paragraph 15N, is an asset to which paragraph 15U(1) applies, (ii) an asset which is taken into account in determining the amount of a reduction under paragraph 15X for the purposes of Step 3 in paragraph 15N in the application of those paragraphs in relation to any member of the relevant group, or (iii) in a case where the bank levy is charged as provided for by paragraph 4 (groups) and a relevant foreign bank is a member of the relevant group, an asset which for the purposes of Step 3 of paragraph 24(1) is an asset to which paragraph 27D(1) applies, and (c) underlying that asset, as collateral, is an item (“the collateral”) which— (i) in a case within paragraph (a)(i), is owned by the member and would form part of the sub-group's high quality liquid assets as at the end of that period were the collateral, rather than the financial asset, an asset of the sub-group; (ii) in a case within paragraph (a)(ii), is owned by the entity and would form part of the entity's high quality liquid assets as at the end of that period were the collateral, rather than the financial asset, an asset of the entity. (2) The amount within paragraph (b) of Step 4 in paragraph 15N is— (a) the amount of the financial asset as at the end of the chargeable period or, if lower, an amount equal to the fair value of the collateral as at that time, or (b) if this sub-paragraph applies in relation to more than one financial asset, the total of the amounts determined under paragraph (a) in respect of each of those assets. (15Z1) Take Steps 1 to 4 to determine the non-UK allocated equity and liabilities attributable to a foreign permanent establishment of a designated FPE entity as at the end of the chargeable period. Take Step 5 to determine the UK-based equity and liabilities, or (in a case to which paragraph 15K or 15L applies) the adjusted equity and liabilities, of a designated FPE entity as at the end of the chargeable period. Take Steps 6 and 7 to determine how much of the designated FPE entity's equity and liabilities is to be treated as long term equity and liabilities and how much as short term liabilities for the purposes of the determination at Step 3 in paragraph 6(2). - Step 1 In accordance with paragraph 15G(2), determine the amount (“A”) of the assets of the designated FPE entity as at the end of the chargeable period (subject to any adjustment under paragraph 15Z4(1)). - Step 2 In accordance with paragraph 15Z2, determine the amount (“B”) of the assets, as at the end of the chargeable period, of the foreign permanent establishment (subject to any adjustment under paragraph 15Z4(2)). The proportion which B is of A is “X%”. - Step 3 Determine the amount (“C”) that would, if an election under paragraph 15D or 15E had not been made, be the amount of the UK-based equity and liabilities (or the adjusted equity and liabilities) of the entity, by— 1. determining the amount of the equity and liabilities of the entity, as at the end of the chargeable period, under paragraph 15G(2), and 2. adjusting that amount in accordance with paragraph 15N. - Step 4 The amount of the non-UK allocated equity and liabilities attributable to the foreign permanent establishment is X% of C. - Step 5 To determine the amount (“Z”) of the UK-based equity and liabilities, or (in a case to which paragraph 15K or 15L applies) the adjusted equity and liabilities, of the designated FPE entity— 1. determine, in accordance with Steps 1 to 4, the amount of the non-UK allocated equity and liabilities attributable to each of the entity's foreign permanent establishments in respect of which an election has been made under paragraph 15D or 15E, and 2. reduce C by the total of those amounts. - Step 6 Determine the proportion (“Y%”) of C which is long term equity and liabilities. - Step 7 For the purposes of Step 3 in paragraph 6(2) treat Y% of Z as long term equity and liabilities and the rest as short term liabilities. (15Z2) (1) This paragraph applies for the purposes of Step 2 in paragraph 15Z1. (2) The assets of the foreign permanent establishment are those which it would have were it a distinct and separate enterprise which— (a) engaged in the same or similar activities under the same or similar conditions, and (b) dealt wholly independently with the designated FPE entity. (3) For the purposes of paragraph 15Z1 and this paragraph, any relevant provisions of Chapter 3A of Part 2 of CTA 2009 (UK resident companies: profits of foreign permanent establishments) are to be applied as they would be applied in determining profits attributable to the foreign permanent establishment for corporation tax purposes. (4) But in determining the non-UK allocated equity and liabilities attributable to a foreign permanent establishment of a designated FPE entity which is a member of the relevant group, any assets within sub-paragraph (5) are to be left out. (5) The assets within this sub-paragraph are any assets of the foreign permanent establishment (as otherwise determined under this paragraph) representing an excluded loan relationship. (6) A loan relationship is “excluded” if— (a) the designated FPE entity mentioned in sub-paragraph (4) is the creditor, (b) the debtor (“D”) is a UK resident bank, a building society or a relevant foreign bank— (i) which is a member of the relevant group, and (ii) whose activities include the relevant regulated activity described in the provision mentioned in paragraph 79(a), (c) the money which is the subject of the transaction giving rise to D's debt is money borrowed by the designated FPE entity mentioned in sub-paragraph (4) from another entity, and (d) in borrowing that money the designated FPE entity was acting as the agent or intermediary of D. (7) Section 302(1) of CTA 2009 (definition of “loan relationship”) applies for the purposes of sub-paragraphs (5) and (6) as it applies for corporation tax purposes. (15Z3) (1) Paragraph 15Z4 applies for the purposes of Steps 1 and 2 in paragraph 15Z1 if— (a) the designated FPE entity mentioned in paragraph 15Z1 (“E”) has liabilities to another entity which (in a case where the bank levy is charged as provided for by paragraph 4 (groups)) is not within sub-paragraph (5) (“E's liabilities”), (b) E recognises, as assets, amounts due from that other entity (“N”) to E (“N's liabilities”), (c) there is in place an agreement between E and N which makes net settlement provision, and (d) that provision is legally effective and enforceable. (2) In sub-paragraph (1)(c), “net settlement provision” means provision for there to be a single net settlement— (a) if a netting event occurs, or (b) at the option of E or N, if a netting event occurs. (3) The reference in sub-paragraph (2) to a “single net settlement” is a reference to a single net settlement of— (a) all E's liabilities (so far as covered by the provision mentioned in sub-paragraph (1)(c)) and (b) all N's liabilities (so far as covered by that provision). (4) But a provision for there to be single net settlement— (a) at the option of E, but not at the option of N, if a netting event occurs, or (b) at the option of N, but not at the option of E, if a netting event occurs, is not to be treated as a net settlement provision for the purposes of sub-paragraph (1)(c). (5) An entity is within this sub-paragraph if it is— (a) a UK resident entity which is a member of a UK sub-group, (b) a chargeable UK resident entity, or (c) a relevant foreign bank which is a member of the relevant group. (6) For the purposes of sub-paragraph (1)— (a) “agreement” includes an agreement which forms part of a multi-lateral agreement, arrangement or trading facility, (b) references to amounts due from N include securities provided by E to N as collateral, but only where E recognises those securities in its balance sheet or statement of financial position, and (c) “a netting event occurs”— (i) in relation to E, if the insolvency or bankruptcy of E gives rise to the termination of any arrangements under which any liability covered by the provision mentioned in sub-paragraph (1)(c) arises, or (ii) in relation to N, if the insolvency or bankruptcy of N gives rise to the termination of any arrangements under which such a liability arises. (7) Section 556 of CTA 2009 (meaning of securities and similar securities) applies for the purposes of sub-paragraph (6) as it applies for the purposes of Chapter 10 of Part 6 of that Act. (15Z4) (1) In determining the amount of E's assets at Step 1 in paragraph 15Z1, the amount of E's net settlement assets is to be reduced (but not below nil) by the amount of E's net settlement liabilities. (2) In determining the amount of the foreign permanent establishment's assets at Step 2 in paragraph 15Z1— (a) the reduction in E's assets under sub-paragraph (1) is to be ignored, but (b) the amount of the foreign permanent establishment's net settlement assets is to be reduced by Z%. (3) For this purpose, “Z%” is the proportion by which E's net settlement assets are reduced under sub-paragraph (1). (4) E's “net settlement liabilities” are E's liabilities so far as they— (a) are covered by the provision mentioned in paragraph 15Z3(1)(c), and (b) are not excluded liabilities. (5) E's “net settlement assets” are E's assets so far as corresponding to N's net settlement liabilities. (6) “N's net settlement liabilities” means N's liabilities so far as they are covered by the provision mentioned in sub-paragraph 15Z3(1)(c). (7) The permanent establishment's “net settlement assets” are its assets so far as they are part of E's net settlement assets. (15Z5) (1) If a relevant equity and liabilities amount is less than £50 million, that amount may be ignored for the purposes of determining the chargeable equity and liabilities of the relevant group under paragraph 15. (2) But the total amount which may be ignored under sub-paragraph (1) may not exceed £200 million. (3) In sub-paragraph (1), “relevant equity and liabilities amount” means— (a) in the case of a chargeable UK resident entity, the amount of the equity and liabilities, as at the end of the chargeable period, of the entity, (b) in the case of a UK sub-group to which paragraph 15J applies, the amount of the equity and liabilities, as at the end of the chargeable period, of the UK sub-group, (c) in the case of a UK sub-group to which paragraph 15K applies, the total amount of— (i) the equity and liabilities of the residual UK sub-group, and (ii) the equity and liabilities of each designated FPE entity, as at the end of the chargeable period, (d) in the case of a UK sub-group to which paragraph 15L applies, the total amount of the equity and liabilities, as at the end of the chargeable period, of each UK resident entity (whether or not a designated FPE entity) which is a member of the UK sub-group, or (e) in the case of a relevant foreign bank which is a member of the relevant group, the amount of the UK allocated equity and liabilities, as at the end of the chargeable period.

Definition of “UK allocated equity and liabilities”

3

In paragraph 24(1) (steps to determine UK allocated equity and liabilities), in Step 3, for “chargeable equity and liabilities” substitute “ adjusted equity and liabilities ”.

4

• (1) Paragraph 25 (UK allocated equity and liabilities: netting) is amended as follows.

• (2) In sub-paragraph (1), in the words before paragraph (a), after “applies” insert “ for the purposes of Steps 1 and 2 in paragraph 24(1) ”.

• (3) In sub-paragraph (1)(c), for the words from “makes provision” to “occurs” substitute “ makes net settlement provision ”.

• (4) After sub-paragraph (1) insert—

(1A) In sub-paragraph (1)(c), “net settlement provision” means provision for there to be a single net settlement— (a) if a netting event occurs, or (b) at the option of the bank or N, if a netting event occurs. (1B) The reference in sub-paragraph (1A) to a “single net settlement” is a reference to a single net settlement of— (a) all the bank's liabilities (so far as covered by the provision mentioned in sub-paragraph (1)(c)), and (b) all N's liabilities (so far as covered by that provision). (1C) But a provision for there to be single net settlement— (a) at the option of the bank, but not at the option of N, if a netting event occurs, or (b) at the option of N, but not at the option of the bank, if a netting event occurs, is not to be treated as a net settlement provision for the purposes of sub-paragraph (1)(c).

• (5) For sub-paragraph (2) substitute—