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Explains thin capitalisation terms we use that begin with P.

Last updated 8 March 2016

Permanent establishment

Generally, a permanent establishment is a place at or through which an entity conducts its business in another country, such as a branch. A permanent establishment can be in Australia; that is, an Australian permanent establishment of a foreign entity, or not in Australia; that is, an overseas permanent establishment of an Australian entity.

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Potential MEC group

A potential MEC group derives from one or more eligible tier 1 companies of a top company and consists of those eligible tier 1 companies and all the eligible resident entities that are wholly-owned subsidiaries (if any) of those eligible tier 1 companies.

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Premium excess amount

This is the proportion of the value of an investment in an associate entity that can increase or decrease the investing entity's associate entity excess amount.

The investing entity may have paid a premium for the equity investment in the associate entity where the market value of the equity investment is greater than the net asset backing of the investment. The premium paid is an asset of the investor and 3/5 of its value (in accordance with the 1.5:1 ratio) can be used to increase the investing entity's safe harbour debt amount. Also, the investing entity may have paid less than the net asset backing for the equity investment. In this case, the premium excess amount will be a negative amount.

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Prudential standards

These are the prudential standards determined by APRA and in force under section 11AF of the Banking Act 1959.

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