Part 2Charge to corporation tax: basic provisions

Chapter 4Non-UK resident companies: chargeable profits

The separate enterprise principle: application to non-UK resident banks

27Loans: attribution of financial assets and profits arising

(1)

This section applies if the non-UK resident company—

(a)

is a bank, and

(b)

makes a loan or has another financial asset.

(2)

In accordance with the separate enterprise principle, the loan or other financial asset, and profits arising from it, are attributed to the permanent establishment so far as they can reasonably be regarded as having been generated by the activities of the permanent establishment.

(3)

For the purposes of subsection (2), particular account is to be taken of the extent to which the permanent establishment is responsible for—

(a)

obtaining the offer of new business,

(b)

establishing the potential borrower's credit rating and the risk involved in providing credit,

(c)

negotiating the terms of the loan with the borrower, and

(d)

deciding whether, and if so on what conditions, to make or extend the loan.

(4)

For those purposes, account may also be taken of the extent to which the permanent establishment is responsible for—

(a)

concluding the loan agreement and disbursing the proceeds of the loan, and

(b)

administering the loan (including handling and monitoring the service of it) and holding and controlling any securities pledged.

(5)

References in this section to a financial asset include any financial risk in relation to a loan, or potential loan, if—

(a)

the financial risk is capable of giving rise to fees or other receipts, and

(b)

the holding of capital is required for the financial risk (or would be required if the transaction were between parties at arm's length).