Finance Act 2019

21 Permanent establishments: preparatory or auxiliary activities

(1) Section 1143 of CTA 2010 (permanent establishments: preparatory or auxiliary activities) is amended as follows.

(2) In subsection (2), at the end insert “and are not part of a fragmented business operation”.

(3) After subsection (2) insert—

“(2A) Activities are “part of a fragmented business operation” if—

(a) they are carried on (whether at the same place or at different places in the same territory) by the company or a person closely related to the company,

(b) they constitute complementary functions that are part of a cohesive business operation, and

(c) subsection (2B) applies.

(2B) This subsection applies if—

(a) the overall activity resulting from the combination of the functions mentioned in subsection (2A)(b) is not activity that is only of a preparatory or auxiliary character, or

(b) the company or a person closely related to the company has a permanent establishment in the territory by reason of carrying on any of those functions.

(2C) A person who is not a company is to be treated for the purposes of subsection (2B)(b) as having a permanent establishment in a territory if, were the person a company, the person would have a permanent establishment in the territory.

(2D) For the purposes of this section, one person (“A”) is closely related to another person (“B”) if—

(a) A is able to secure that B acts in accordance with A’s wishes (or vice versa),

(b) B can reasonably be expected to act, or typically acts, in accordance with A’s wishes (or vice versa),

(c) a third person is able to secure that A and B act in accordance with the third person’s wishes,

(d) A and B can reasonably be expected to act, or typically act, in accordance with a third person’s wishes, or

(e) the 50% investment condition is met in relation to A and B.

(2E) The 50% investment condition is met in relation to A and B if—

(a) A has a 50% investment in B (or vice versa), or

(b) a third person has a 50% investment in each of A and B,

and section 259ND of TIOPA 2010 (meaning of “50% investment”) applies for the purposes of determining whether a person has a “50% investment”.

(4) In subsection (3), for “For this purpose” substitute “In this section”.

(5) The amendments made by this section have effect in relation to accounting periods beginning on or after 1 January 2019.

(6) For the purposes of subsection (5), if a company has an accounting period beginning before, and ending on or after, that date (“the straddling period”)—

(a) so much of the straddling period as falls before that date, and so much of it as falls on or after that date, are treated as separate accounting periods, and

(b) if it is necessary to apportion an amount for the straddling period to the two separate periods, it is to be apportioned—

(i) on a time basis according to the respective length of the separate periods, or

(ii) if that would produce a result that is unjust or unreasonable, on a just and reasonable basis.