For UK headquartered bank groups, the consolidated holding company balance sheet will be used. Group is defined by reference to accounting, not tax, tests and IFRS will normally be used for this purpose, but a non-UK group which can and does account under US GAAP can use that as an alternative, at least for determining which entities form part of its group. However, it is unclear under the current drafting whether the use of US GAAP also extends to determining the tax base; whilst it would seem from some of the drafting that this might be intended to be the case, at present it is not clear that this is actually achieved. A bank group is defined in a similar way to that used for the payroll tax. For UK banks which are part of a corporate or non-banking group, the balance sheet of the bank entity will be used.
Where the entity being taxed is a UK branch of a non-UK bank or group, the levy will be applied by reference to a notional balance sheet derived using broadly the same methodology as applies for determining permitted interest deductions for corporation tax purposes (known as the capital attribution tax adjustment or CATA). This is based on allocating assets to the UK branch based on Key Entrepreneurial Risk Taking principles and then determining the proportion which the branch assets bear to the overall group assets. (Certain assets which the branch has which represent borrowings raised by the branch as agent or intermediary for another group company may be ignored for this purpose).This proportion is then used to allocate what part of the group’s overall equity and liabilities are to be attributed to the UK branch. These are then allocated into long and short term categories based on the proportion which the non-UK bank group’s long and short term liabilities bear to each other.
Where a non-resident group has both UK subsidiaries and a UK branch the calculation is more complex, and careful review of the current draft legislation will be necessary to ensure that there is no double counting of liabilities where, as will normally be the case, the non-resident group funds the subsidiaries by way of intra company loan.