INTM286310 | Foreign Permanent Establishments of UK Companies: anti-diversion rule: When does it apply?

This applies for relevant accounting periods beginning on or after 1 January 2013.

When do the anti-diversion rules apply?

The anti-diversion rules apply where the profits of a UK company’s foreign PE has:

(a) an adjusted relevant profits amount,

(b) that includes diverted profits (CTA09/S18H), and

(c) the exemptions (CTA09/S18I) do not apply.

The adjusted relevant profits amount is defined at CTA09/S18G(3) as the relevant profits amount (CTA09/S18A(6)) calculated without reference to chargeable gains or allowable losses.

Diverted profits are any profits of the UK company included in the adjusted relevant profits amount that pass through the Diverted Profits Gateway. To determine the amount of profits that pass through the Diverted Profits Gateway, the CFC Charge Gateway rules are applied as if references to the CFC Charge Gateway are references to the Diverted Profits Gateway but excluding Chapter 8 of the CFC Charge Gateway.

The entity exemptions referred to in CTA09/S18I are the ones set out in Chapters 11 to 14 of TIOPA10/Part9A as adapted for the foreign PE rules

The new rules align the foreign PE exemption with the CFC regime by taking two different approaches. The first approach adapts and applies the CFC Charge Gateway, whilst the second adapts and applies the CFC entity exemptions.