INTM610230 | Profit Fragmentation Adjustments: Reimbursement Payments

Paragraph 9 Schedule 4 Finance Act 2019 means that any payment made by any person to the resident party to enable the latter to meet any tax liability resulting from the application of the Profit Fragmentation rules is not to be taken into account in computing the resident party’s income or profits for tax purposes.

Example 22 – Reimbursement of Tax Paid

If we consider the facts to be as those in Example 20 at INTM610200. The resident party has disallowed £90,000 worth of their expenses in their tax computation thus increasing their tax liability by £18,000.

The overseas party makes a payment of £18,000 to the resident party to help the resident party meet its tax liability.

HMRC will not seek to tax the £18,000 receipt in the hands of the resident party.