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Corporation Tax (Northern Ireland) Act 2015

Chapter 7

34.Chapter 7 identifies the profits and losses of a trade of a large company which are Northern Ireland profits or Northern Ireland losses. The rules set out in this Chapter for the attribution of profit to the NIRE follow internationally recognised principles similar to those governing the attribution of profits to a permanent establishment which are set out at Chapter 4 of Part 2 of CTA 2009.

35.The profits or losses of the qualifying trade can comprise either Northern Ireland profits or losses, mainstream profits or losses or a combination of both. The Northern Ireland profits and losses of a qualifying trade of a company which is a Northern Ireland company by virtue of the large company condition at section 357KA(3) are those which are attributable to a NIRE and which do not arise from an excluded activity.

36.The definition of “qualifying trade” covers cases where a company makes a one-off election under section 357KB to bring in profits attributable to the back-office functions of certain trades which would otherwise be excluded trades.

37.Northern Ireland profits and losses are attributable to the NIRE on the principle that it is a separate enterprise, engaging in the same or similar activities as if it were wholly independent from the company, and as if transactions between the NIRE and the company were made at arm’s length.

38.Provision is made for the attribution of allowable expenses incurred for the purpose of the NIRE, but no deduction is allowable for internal royalties or similar payments paid by the NIRE to any other part of the company for the use of intangible assets. No deduction is allowable for interest or other financing costs paid by the NIRE to any other part of the company. A deduction will, however, be allowed for any contribution by the NIRE to the costs of creating an intangible asset and any contribution received by the NIRE towards such costs will be attributable to it.

39.Internal royalties or other similar amounts received by the NIRE from other parts of the company will not be brought into account when calculating the profits attributable to the NIRE. Internal interest or other financing income received from any other part of the company will not be attributable to the NIRE.

40.Section 357NB sets out how the back-office profits of an excluded trade for which an election under section 357KB has been made are to be determined. The profits are imputed on a percentage mark-up basis. Each back-office deduction is marked up at a rate of 5 per cent.

41.Section 357NB(3) provides a power for the Treasury to vary the rate which is used to arrive at the value of the imputed profits of back-office activities.

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