INTM287050 - Foreign Permanent Establishments of UK Companies: exclusions and definitions: banks and interest on advances from banks

Particular circumstances of banks

The particular circumstances of banks are recognised in CTA09/S18D(3). This provides an exception for the permanent establishments of banks, as defined by CTA10/S1120, receiving payments in respect of what would otherwise be excluded transactions.

This is however subject to the proviso that the transaction does not form part of arrangements which have a main purpose of the avoidance of an obligation under ITA07/Part 15 to deduct income tax. An ‘obligation’ means an obligation on any person. While it is expected that any transactions aimed at exploiting the exception for banks would be subject to the anti-diversion rule at CTA09/Ss18G to 18I, this anti-avoidance provision at S18D(3) gives additional protection.

Interest paid on advances from banks

ITA07/S879 removes the duty to deduct under ITA07/S874 where the payment is of ‘interest on an advance from a bank if, at the time when the payment is made, the person beneficially entitled to the interest is within the charge to corporation tax as respects the interest’.

This provision is extended with branch exemption to ensure that it continues to disapply the obligation to deduct where the payment will be attributed to a PE of a bank to which an election under CTA09/S18A has effect. This is achieved by the addition of the words ‘…or is a bank that would be within the charge to corporation tax as respects the interest apart from section 18A of CTA 2009’.