Finance Act 2019

Profit fragmentation arrangements

2 (1) Arrangements are “profit fragmentation arrangements” if—

(a) provision has been made or imposed as between the resident party and the overseas party by means of the arrangements (“the material provision”),

(b) as a result of the material provision, value is transferred from the resident party to the overseas party which derives directly or indirectly from the profits of a business chargeable to income tax or corporation tax (see paragraph 3),

(c) the value transferred is greater than it would have been if it had resulted from provision made or imposed as between independent parties acting at arm’s length, and

(d) any of the enjoyment conditions are met in relation to a related individual (see paragraph 4).

(2) But arrangements are not “profit fragmentation arrangements” if—

(a) the material provision does not result in a tax mismatch for a tax period of the resident party (see paragraphs 5 and 6), or

(b) it is not reasonable to conclude that the main purpose, or one of the main purposes, for which the arrangements were entered into was to obtain a tax advantage.

(3) For the purposes of sub-paragraph (1)(a) provision made or imposed as between a partnership of which the resident party is a member and the overseas party is to be regarded as provision made or imposed as between the resident party and the overseas party.