MTT41030 | Particular entities and adjustments: Permanent establishments: Allocation of adjusted loss to main entity

Where a permanent establishment (PE) records a loss in its adjusted profits, that loss is reallocated to the main entity from the PE, to the extent that the loss:

• is treated as an allowable expense of the main entity for tax purposes in the territory where the main entity is located, and

• is not set against income that is subject to tax in the territories of both the main entity and the PE.

Such an amount is to be:

• excluded from the adjusted profits of the PE (added back to the adjusted loss), and

• treated as an expense of the main entity for the same period, when calculating its adjusted profits.

This is set out in section 160 of Finance (No.2) Act 2023.

Permanent establishment records profit in subsequent period

If the PE records a profit in its adjusted profits in a subsequent accounting period, those profits will be treated as income of the main entity, until amounts of loss that were previously reallocated from the PE to the main entity have been fully recovered.

Any profits of the PE that are treated as income of the main entity are excluded from the adjusted profits of the PE.