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Corporation Tax Act 2009

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Changes and effects yet to be applied to Part 2 Chapter 4:

  • S 1217N(3) modified by 2010 c. 4 s. 357UI (as inserted) by 2015 c. 21 s. 1

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Whole provisions yet to be inserted into this Act (including any effects on those provisions):

Chapter 4U.K.Non-UK resident companies: chargeable profits

Chargeable profitsU.K.

19Chargeable profitsU.K.

(1)This section applies if a non-UK resident company carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.

(2)The company's chargeable profits are its profits that are—

(a)of a type mentioned in subsection (3), and

(b)attributable to the permanent establishment in accordance with sections 20 to 32.

(3)The types of profits referred to in subsection (2)(a) are—

(a)trading income arising directly or indirectly through or from the establishment,

(b)income from property or rights used by, or held by or for, the establishment, and

(c)chargeable gains falling within section 10B of TCGA 1992 (non-resident company with United Kingdom permanent establishment)—

(i)as a result of assets being used in or for the purposes of the trade carried on by the company through the establishment, or

(ii)as a result of assets being used or held for the purposes of the establishment or being acquired for use by or for the purposes of the establishment.

20Profits attributable to permanent establishment: introductionU.K.

(1)Sections 21 to 32 apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom.

(2)Sections 21 to 28 contain provision about the separate enterprise principle.

(3)See also [F1section 1152 of CTA 2010 (investment managers: disregard of certain chargeable profits)] , which provides for profits of certain investment transactions to be disregarded in determining the amount of profits attributable to a permanent establishment.

Textual Amendments

F1Words in s. 20(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 590 (with Sch. 2)

The separate enterprise principleU.K.

21The separate enterprise principleU.K.

(1)The profits of the non-UK resident company that are attributable to the permanent establishment are those that the establishment would have made if it were a distinct and separate enterprise which—

(a)engaged in the same or similar activities under the same or similar conditions, and

(b)dealt wholly independently with the non-UK resident company.

(2)In applying subsection (1) assume that—

(a)the permanent establishment has the same credit rating as the non-UK resident company, and

(b)the permanent establishment has such equity and loan capital as it could reasonably be expected to have in the circumstances specified in that subsection.

(3)In sections 22 to 28 the principle in subsection (1) (read with subsection (2)) is called “the separate enterprise principle”.

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

22Transactions treated as being on arm's length termsU.K.

In accordance with the separate enterprise principle, transactions between the permanent establishment and any other part of the non-UK resident company are treated as taking place on such terms as would have been agreed between parties dealing at arm's length.

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

23Provision of goods or services for permanent establishmentU.K.

(1)This section applies if the non-UK resident company provides the permanent establishment with goods or services.

(2)If the goods or services are of a kind that the company supplies, in the ordinary course of its business, to third parties dealing with it at arm's length, the matter is dealt with as a transaction to which the separate enterprise principle applies.

(3)If not, the matter is dealt with as an expense incurred by the non-UK resident company for the purposes of the permanent establishment (see section 29).

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

[F224Application to insurance companiesU.K.

(1)This section makes provision in a case where the non-UK resident company mentioned in subsection (1) of section 21 is an insurance company.

(2)In accordance with the principle in that subsection, the permanent establishment is treated as holding—

(a)the same or a similar quantity of assets, and

(b)assets of the same or similar description,

as would have been held by a distinct and separate enterprise acting as mentioned in paragraphs (a) and (b) of that subsection.

(3)The assets which the permanent establishment is treated as holding in accordance with the principle in that subsection may include a proportion of assets held by the company.

(4)Nothing in subsection (2) or (3) is to be read as preventing the application of similar principles to those provided for by that subsection in a case where the non-UK resident company mentioned in section 21(1) is not an insurance company.

(5)The Commissioners for Her Majesty's Revenue and Customs may by regulations make other provision about the application of section 21(1) in a case where the non-UK resident company mentioned there is an insurance company.

(6)The regulations may, in particular, make provision in place of section 21(2)(b) as to the basis on which, in the case of an insurance company, capital is to be attributed to a permanent establishment in the United Kingdom.]

Textual Amendments

F2S. 24 substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 138

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

The separate enterprise principle: application to non-UK resident banksU.K.

25Non-UK resident banks: introductionU.K.

(1)Sections 26 to 28 contain provision in relation to the application of the separate enterprise principle if the non-UK resident company is a bank.

(2)Nothing in sections 26 to 28 is to be read as preventing similar principles to those provided for in those sections from applying when the separate enterprise principle is applied to a non-UK resident company that is not a bank.

(3)In this section and those sections “bank” has the meaning given by [F3section 1120 of CTA 2010] .

Textual Amendments

F3Words in s. 25(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 591 (with Sch. 2)

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

26Transfer of financial assetsU.K.

(1)This section applies if—

(a)the non-UK resident company is a bank, and

(b)there is a transfer of a loan or other financial asset between the permanent establishment and any other part of the company.

(2)In accordance with the separate enterprise principle, the transfer is recognised only if it would have taken place between independent enterprises.

(3)The transfer is not recognised if it cannot reasonably be considered that it is carried out for valid commercial reasons.

(4)For this purpose the obtaining of a tax advantage is not a valid commercial reason.

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

27Loans: attribution of financial assets and profits arisingU.K.

(1)This section applies if the non-UK resident company—

(a)is a bank, and

(b)makes a loan or has another financial asset.

(2)In accordance with the separate enterprise principle, the loan or other financial asset, and profits arising from it, are attributed to the permanent establishment so far as they can reasonably be regarded as having been generated by the activities of the permanent establishment.

(3)For the purposes of subsection (2), particular account is to be taken of the extent to which the permanent establishment is responsible for—

(a)obtaining the offer of new business,

(b)establishing the potential borrower's credit rating and the risk involved in providing credit,

(c)negotiating the terms of the loan with the borrower, and

(d)deciding whether, and if so on what conditions, to make or extend the loan.

(4)For those purposes, account may also be taken of the extent to which the permanent establishment is responsible for—

(a)concluding the loan agreement and disbursing the proceeds of the loan, and

(b)administering the loan (including handling and monitoring the service of it) and holding and controlling any securities pledged.

(5)References in this section to a financial asset include any financial risk in relation to a loan, or potential loan, if—

(a)the financial risk is capable of giving rise to fees or other receipts, and

(b)the holding of capital is required for the financial risk (or would be required if the transaction were between parties at arm's length).

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

28Borrowing: permanent establishment acting as agent or intermediaryU.K.

(1)This section applies if—

(a)the non-UK resident company is a bank, and

(b)the permanent establishment borrows funds for the purposes of another part of the company and (in relation to that borrowing) acts only as an agent or intermediary.

(2)In accordance with the separate enterprise principle—

(a)the profits attributable to the permanent establishment, and

(b)the capital attributable to the permanent establishment under section 21(2)(b),

are to be those appropriate in the case of an agent acting at arm's length, taking into account the risks and costs borne by the establishment.

Modifications etc. (not altering text)

C1Ss. 21-28 applied (19.7.2011) by Finance Act 2011 (c. 11), Sch. 19 para. 26(3)

Rules about deductionsU.K.

29Allowable deductionsU.K.

(1)A deduction is allowed for any allowable expenses incurred for the purposes of the permanent establishment.

(2)Expenses incurred for the purposes of the permanent establishment include executive and general administrative expenses so incurred, whether in the United Kingdom or elsewhere.

(3)It does not matter whether the expenses are incurred by, or reimbursed by, the permanent establishment.

(4)The amount of expenses to be taken into account under subsection (1) is the actual cost to the non-UK resident company.

(5)Allowable expenses” means expenses of a kind in respect of which a deduction would be allowed for corporation tax purposes if incurred by a UK resident company.

30Restriction on deductions: costsU.K.

No deduction is allowed for costs in excess of those which would have been incurred on the assumptions in section 21(2).

31Restriction on deductions: payments in respect of intangible assetsU.K.

(1)No deduction is allowed for royalties paid, or other similar payments made, by the permanent establishment to any other part of the non-UK resident company in respect of the use of intangible assets held by the company.

(2)This does not prevent a deduction for any contribution by the permanent establishment to the costs of creation of an intangible asset.

(3)In this section “intangible asset” has the meaning it has for accounting purposes, and includes any intellectual property (as defined in section 712(3)).

32Restriction on deductions: interest or other financing costsU.K.

(1)No deduction is allowed for payments of interest or other financing costs by the permanent establishment to any other part of the non-UK resident company.

(2)But the restriction in subsection (1) does not apply to interest or other financing costs that are payable in respect of borrowing by the permanent establishment in the ordinary course of a financial business carried on by it.

(3)In subsection (2) “financial business” means any of the following—

(a)banking, deposit-taking, money-lending or debt-factoring, or a business similar to any of those, and

(b)dealing in commodity or financial futures.

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