BKM503400 - The Code commitments – governance: application to overseas entities

Where an overseas entity is part of a UK group or sub-group, HMRC expects the UK parent’s governance arrangements to cover any activities of the overseas entity which give rise to a UK tax advantage to the bank or its customers. The governance arrangements should be sufficient to ensure the subsidiary is not entering into transactions or promoting arrangements which aim to achieve a tax result that is contrary to the intentions of Parliament.

If the UK parent is aware that its overseas subsidiary is promoting arrangements which aim to achieve a UK tax result that is contrary to the intentions of Parliament, this will give rise to concerns over the tax planning part of the Code because the bank is knowingly promoting UK tax avoidance (See BKM504800).

Where a bank has adopted the Code and an overseas member of that group is not part of a UK group or sub-group, then HMRC accepts it would not be appropriate or practical for the UK business to extend Code governance to the activities of that overseas entity. However, if the UK arm of the business is actively involved in the activities of that overseas entity e.g. advising, sourcing customers or setting up the arrangements, this may give rise to concerns under the tax planning part of the Code (See BKM504000).

Examples of applying the Code to the activities of overseas entities without a UK parent or sub-parent include the following:

• The Code will apply if a customer approaches any part of the bank operating in the UK and is put in touch with an overseas entity and the bank knows the overseas entity is going to promote tax avoidance or evasion by that UK customer.
• The Code will not apply if a transaction is promoted to third party customers in the UK directly by the overseas entity and does not require any input from the bank’s UK companies.
• The Code will not apply if a customer approaches the overseas entity directly and there is no contact with the bank’s UK operations even though the customer gets a UK tax advantage as a result of the transaction they undertake with that overseas entity.