Corporation Tax Act 2009

[F1 Exemption U.K.

Textual Amendments

F1 Pt. 2 Ch. 3A inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 4, 31

18A Exemption for profits or losses of foreign permanent establishments U.K.

(1) If a F2 ... company makes an election under this section, exemption adjustments are to be made at the appropriate stages in calculating the taxable total profits of the company for each relevant accounting period.

(2) For that purpose “exemption adjustments” means any such adjustments as are appropriate to secure that there are left out of account any profits and losses taken into account in arriving at the foreign permanent establishments amount in relation to any relevant accounting period.

[F3 (2A) But profits and losses are not to be left out of account as mentioned in subsection (2) so far as they are [F4 or, if the company were non-UK resident, would be—

(a) profits or losses of the company's trade of dealing in or developing UK land (see section 5B),

(b) profits or losses of the company's UK property business,

(c) profits consisting of the company's other UK property income, or

(d) profits or losses arising from loan relationships or derivative contracts that the company is a party to for the purposes of its UK property business or for the purposes of enabling it to generate other UK property income.]]

[F5 (2B) Profits and losses are not to be left out of account as mentioned in subsection (2) so far as, if the company were non-UK resident, they would be gains or losses accruing on disposals of assets within section 2B(4)(a) or (b) of TCGA 1992 (interests in UK land or other assets deriving at least 75% of their value from UK land).]

(3) In this Chapter “relevant accounting period”, in relation to a company by which an election is made under this section, means an accounting period of the company to which the election applies (as to which see section 18F).

(4) For the purposes of this Chapter the “foreign permanent establishments amount”, in relation to an accounting period of a company, is—

(a) the aggregate of the relevant profits amount in the case of each relevant foreign territory in relation to which there is a relevant profits amount for the accounting period, less

(b) the aggregate of the relevant losses amount in the case of each relevant foreign territory in relation to which there is a relevant losses amount for the accounting period.

(5) In this Chapter “relevant foreign territory”, in relation to a company, means a territory outside the United Kingdom in which the company carries on, or has carried on, business through a permanent establishment.

(6) For the purposes of this Chapter “relevant profits amount”, in relation to a relevant foreign territory and an accounting period of a company, means—

(a) in the case of a full treaty territory, profits which would be taken to be attributable to the permanent establishment of the company in the territory for the purpose of ascertaining the amount of any credit to be allowed under TIOPA 2010 (in respect of tax paid under the law of the relevant foreign territory) against corporation tax if the company were to be liable to corporation tax for the accounting period (apart from this Chapter), or

(b) in the case of any other territory, profits which would be taken to be so attributable for that purpose if the territory were a full treaty territory and the double taxation arrangements having effect in relation to the territory were in the terms of the OECD model.

(7) For the purposes of this Chapter “relevant losses amount”, in relation to a relevant foreign territory and an accounting period of a company, means—

(a) in the case of a full treaty territory, any losses which would be taken to be attributable to the permanent establishment of the company in the territory on the application of the same rules and principles as fall to be applied under subsection (6)(a), and

(b) in the case of any other territory, any losses which would be taken to be so attributable on that basis if it were a full treaty territory and the double taxation arrangements having effect in relation to the relevant foreign territory were in the terms of the OECD model.

(8) Subsection (9) applies if the amount of any credit to be allowed under TIOPA 2010 in relation to a company in the case of a full treaty territory does not depend on the profits taken to be attributable to the permanent establishment of the company in the territory because tax under the law of the territory is charged, pursuant to the double taxation arrangements having effect in relation to the territory, otherwise than by reference to such profits (as an alternative to a charge by reference to such profits).

(9) The reference in subsection (6)(a) to profits which would be taken to be attributable to the permanent establishment of the company in the territory is to the profits that would be so taken if tax under the law of the territory were charged by reference to such profits; and subsection (7)(a) is to be construed accordingly.

(10) For the purposes of subsections (6) and (7) if double taxation arrangements having effect in relation to a relevant foreign territory do not include provision for the credit to be allowed against tax to be computed by reference to the same profits as those by reference to which the tax was computed under the law of the relevant foreign territory, they are to be assumed to do so.

(11) This section is subject to the following provisions of this Chapter.

Textual Amendments

F2 Words in s. 18A(1) omitted (1.1.2013) by virtue of Finance Act 2012 (c. 14), Sch. 20 paras. 3, 55(1)

F3 S. 18A(2A) inserted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 76(7) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2))

F4 Words in s. 18A(2A) substituted (6.4.2020) by Finance Act 2019 (c. 1), Sch. 5 paras. 12, 35 (with Sch. 5 para. 36)

F5 S. 18A(2B) inserted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 111

18B Chargeable gains etc U.K.

(1) The exemption adjustments required to be made by section 18A(1) include, in the case of any gains or losses on the disposal or realisation of assets which are relevant in the calculation of the taxable total profits of a company for a relevant accounting period, adjustments to remove the effect of any gains or losses relating to the assets taken into account in computing the foreign permanent establishments amount in relation to any relevant accounting period (so that, in appropriate cases, a gain may be increased to reflect a loss so taken into account or a loss increased to reflect a gain so taken into account).

(2) The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any gains in respect of immoveable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

(3) The references in section 18A(6) to profits which would be taken, in the case of a company in relation to which an election under section 18A has effect, to be attributable to the permanent establishment of the company in a territory (including as extended by subsection (2)) do not include any gains which would be taken to be so attributable for the purposes of ascertaining credit to be allowed in respect of tax payable under the law of the territory before the election has effect; and the references to losses in section 18A(7) are to be construed accordingly.

18C Capital allowances etc U.K.

(1) Any allowance under Part 2 of CAA 2001 which, but for section 18A and for section 15(2A)(b) of CAA 2001, could be claimed under section 3(1) of that Act in respect of assets provided for the purposes of a permanent establishment in a territory outside the United Kingdom through which business is or has been carried on by a company in relation to which an election under section 18A has effect (and any charge in connection with any such allowance) is to be made automatically and reflected in any calculation for any relevant accounting period of the company of the profits or losses attributable to business carried on by the company through such a permanent establishment.

(2) In the application of section 13 of CAA 2001 by virtue of subsection (1) on the taking effect of the election under section 18A, references to “market value” have effect as references to “transition value” within the meaning of section 62A of that Act in relation to any plant or machinery in the case of which that is the disposal value under section 61 of that Act.

(3) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account any profits or losses arising from a plant or machinery lease under which the company is a lessor if an allowance under CAA 2001 has been made to the company or a connected company in respect of expenditure on the provision of any plant or machinery subject to the lease (otherwise than in accordance with this section).

(4) Section 70K of that Act (meaning of “plant or machinery lease” and “lessor”) applies for the purposes of subsection (3).

(5) In determining for the purposes of section 18A the amount of any credit to be allowed under TIOPA 2010 in respect of tax under the law of a relevant foreign territory in the case of a company, it is to be assumed that the company made any claim or election (other than a claim for allowances under Part 2 of CAA 2001) which would reduce any relevant profits amount, or increase the relevant losses amount, by any means, and within any time limit, applicable to it.

[F6 18CA Income arising from immovable property U.K.

The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any income arising from immovable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

Textual Amendments

F6 Ss. 18CA, 18CB inserted (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 4

18CB Profits and losses from investment business U.K.

(1) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company, there are to be left out of account any profits or losses of any part of the company's business which consists of the making of investments.

(2) Subsection (1) does not apply to profits or losses arising from assets so far as the assets are effectively connected with any part of the permanent establishment through which a trade or overseas property business of the company is carried on in the territory.

(3) In subsection (2) “effectively connected” is to be given the same meaning as it would be given for the purposes of the OECD model were subsection (2) contained in the OECD model.]

Textual Amendments

F6 Ss. 18CA, 18CB inserted (with effect in accordance with Sch. 20 para. 55(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 4

18D Payments subject to deduction U.K.

(1) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account profits or losses referable to any transaction between a person who is UK resident and a permanent establishment in a territory outside the United Kingdom through which the company carries on, or has carried on, business (“the foreign territory in question”) if the condition in subsection (2) is met.

(2) That condition is that the UK resident would be obliged under Part 15 of ITA 2007 to deduct income tax that is not repayable from payments in respect of the transaction if the payments were made to a company resident in the foreign territory in question (taking account of any double taxation arrangements having effect in relation to the foreign territory in question).

(3) But subsection (1) does not apply if the company is a bank unless the transaction forms part of arrangements the main purpose, or one of the main purposes, of which is the avoidance of an obligation under Part 15 of ITA 2007 to deduct income tax from any payments.

(4) Section 1120 of CTA 2010 (meaning of “bank”) applies for the purposes of subsection (3).

18E Employee share acquisitions U.K.

(1) Any relief which would be given under Chapter 2 or 3 of Part 12 is to be taken into account in determining any relevant profits amount or relevant losses amount in the case of a company under section 18A(6) or (7) in relation to a relevant foreign territory in so far as it is linked to the business carried on by the company through a permanent establishment in the territory.

(2) The extent to which any such relief is so linked is to be determined on a just and reasonable basis having regard to the extent to which the work of the employees concerned contributes to the purposes of the business so carried on.

18F Effect of election U.K.

(1) An election made by a company under section 18A—

(a) (subject to [F7 subsections (6) to (8)] ) is irrevocable, and

(b) applies to all accounting periods of the company beginning on or after the relevant day.

[F8 (2) The relevant day”, in relation to an election made by a UK resident company, means—

(a) the day on which, at the time of the election, the company's accounting period following that in which the election is made is expected to begin, or

(b) if the election is made before the company's first accounting period, the day on which that accounting period begins.

(2A) “The relevant day”, in relation to an election made by a non-UK resident company, means the day on which the company becomes UK resident.]

(3) Subsection (4) applies if an accounting period of the company (“the straddling period”) begins before, and ends on or after, the relevant day.

(4) It is to be assumed, for the purposes of the Corporation Tax Acts, that the straddling period consists of two separate accounting periods—

(a) the first beginning with the straddling period and ending immediately before the relevant day, and

(b) the second beginning with that day and ending with the straddling period.

(5) Where for those purposes it is necessary to apportion the profits and losses for the straddling period to different parts of the period, that apportionment is to be made on a just and reasonable basis.

(6) [F9 An election can be revoked by the company which made it] at any time before the relevant day.

[F10 (7) An election made by a UK resident company is revoked if the company ceases to be UK resident.

(8) An election made by a non-UK resident company is revoked if, having become UK resident, the company ceases to be UK resident.]]

Textual Amendments

F7 Words in s. 18F(1)(a) substituted (1.1.2013) by Finance Act 2012 (c. 14), Sch. 20 para. 5(2), 55(1)

F8 S. 18F(2)(2A) substituted for s. 18F(2) (with effect in accordance with Sch. 20 para. 55(1) of the amending Act) by Finance Act 2012 (c. 14), Sch. 20 para. 5(3), 55(1)

F9 Words in s. 18F(6) substituted (1.1.2013) by Finance Act 2012 (c. 14), Sch. 20 para. 5(4), 55(1)

F10 S. 18F(7)(8) inserted (1.1.2013) by Finance Act 2012 (c. 14), Sch. 20 para. 5(5), 55(1)