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 鈥榦bligation鈥� 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 鈥榠nterest 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鈥�.
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 鈥樷�r is a bank that would be within the charge to corporation tax as respects the interest apart from section 18A of CTA 2009鈥�.