Section 159 | Permanent establishment income and expense attribution

(1)Where a member of a multinational group is a permanent establishment falling within paragraph (a) of section 232(2) (entity treated as permanent establishment in accordance with tax treaty), its underlying profits are to be adjusted so that they —^F1

(a)reflect all amounts of income and expense that are attributable to it in accordance with the tax treaty under which it is treated as a permanent establishment, and^F1

(b)do not reflect amounts attributable to its main entity in accordance with that treaty.^F1

(2)Where a member of a multinational group is a permanent establishment falling within paragraph (b) of section 232(2) (permanent establishment taxed on similar basis to residents in absence of tax treaty), its underlying profits are to be adjusted so that they —^F2

(a)reflect all amounts of income and expense that are attributable to it in accordance with the law of the territory in which the member is located, and^F2

(b)do not reflect amounts attributable to its main entity in accordance with the law of that territory.^F2

(3)Where a member of a multinational group is a permanent establishment falling within paragraph (c) of section 232(2) (permanent establishment located in territory without corporate income tax), its underlying profits are to be adjusted so that they —^F3

(a)reflect all amounts of income and expense that would be attributed to it in accordance with Article 7 of the OECD tax model, and^F3

(b)do not reflect amounts that would be attributed to its main entity in accordance with the OECD tax model.^F3

(4)Amounts are to be reflected (or, as the case may be, not reflected) in the underlying profits of a permanent establishment in accordance with subsections (1) to (3) whether or not—^F4

(a)in the case of an amount of income, it is subject to tax or not, or^F4

(b)in the case of an amount of expense, it is deductible or not.^F4

(5)See also section 135(1)(b) (by virtue of which equivalent adjustments to those set out in subsections (1) to (3) will already be reflected in the underlying profits accounts of a permanent establishment that does not have separate financial accounts from the main entity prepared in accordance with acceptable accounting standards).^F5