INTM610040 | Parties

Paragraph 1 of Schedule 4 defines the parties involved in Profit Fragmentation Arrangements as the resident party, the overseas party and the related individual.

The resident party is the party that is the subject of the legislation and to which the rules apply. The resident party must be a person resident in the UK.

The overseas party is the party to which the value is transferred under Profit Fragmentation Arrangements. The overseas party is defined as:

• a person abroad within the meaning of s718 Income Tax Act 2007 (“ITA 2007”),

• a company, partnership, trust or other entity, or any other arrangements established or having effect under the law of a country or territory outside the UK.

The related individual is the individual in relation to whom the enjoyment conditions must be met. The related individual can be:

• the resident party,

• a member of a partnership of which the resident party is a partner, or

• a participator in a company which is the resident party.

The related individual must be an individual who is involved in the business of the resident party – note if the resident party is a body corporate the body corporate itself cannot also be the related party. The enjoyment conditions require there to be a relationship between the related individual and the value transferred between the resident party and the overseas party as a result of the material provision – this point is expanded on in INTM610110.

Example 3 – Defining the Parties

C Ltd. is a UK resident company which carries out a trade in the UK as a management consultancy firm. D is an individual who is a 20% shareholder in C Ltd. and is responsible for all of the company’s overseas business, which is performed from the UK. D is also involved in another business, O BVI Ltd. through which he performs some personal consultancy services. D arranges for C Ltd.’s overseas customers to make payments to O BVI Ltd. which is a British Virgin Islands resident company.

In the above scenario when considering whether the Profit Fragmentation legislation is applicable C Ltd is the resident party, D is the related individual and O BVI Ltd is the overseas party.