Schedule 7 | Permanent establishments

From legislation.gov.uk

Part 1Amendments to CTA 2009

(1)CTA 2009 (charge to corporation tax: basic provisions) is amended as follows.

(2)In section 18S (other interpretation), in the definition of “the OECD model”—

(a)for “published by the Organisation for Economic Co-operation and Development in July 2010 (“the OECD”)” substitute “approved by the OECD Council on 18 November 2025”, and

(b)for “or” to the end substitute “as it may be amended or replaced from time to time”.

(3)In section 19 (chargeable profits)—

(a)in subsection (2)(b), for “32” substitute “24”;

(b)in subsection (5), for “32” substitute “24”.

(4)In section 20 (profits attributable to permanent establishment: introduction), for subsections (1) and (2) substitute—

(1A)Sections 21 and 24—

(a)apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom, and

(b)contain provision about the separate enterprise principle.

(1B)So far as provisions in those sections are in substantially the same terms as Article 7(2) of the Model Tax Convention on Income and on Capital approved by the OECD Council on 18 November 2025 they are to be read and given effect, so far as possible, in a way that is consistent with—

(a)the 2010 Report on the Attribution of Profits to Permanent Establishments published by the OECD on 22 July 2010,

(b)the OECD’s commentary on Article 7(2) approved by the OECD Council on 18 November 2025,

(c)the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, published by the OECD on 20 January 2022, and

(d)the Additional Guidance on the Attribution of Profits to Permanent Establishments published by the OECD in March 2018.

(1C)Any reference in subsection (1B) to a document published by the OECD, or approved by the OECD Council, is to that document as it may be amended or replaced from time to time.

(1D)And any such document is to be read in accordance with any reservation, declaration or election made by the United Kingdom in relation to that document.

(1E)The Treasury may by regulations make provision—

(a)for subsection (1C) not to apply in relation to any specified amendment or replacement of a document referred to in subsection (1B),

(b)about the effect of any provision of a document referred to in subsection (1B) that has been amended or replaced on or after 26 November 2025 where that provision is elective (however expressed), and

(c)amending subsection (1B) to add a reference to a further document published by the OECD.

“Specified” means specified in regulations.

(1)Section 21 (the separate enterprise principle) is amended as follows.

(2)In subsection (1)—

(a)for “would have made” substitute “might be expected to make”, and

(b)for the words from “distinct” to the end substitute “separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the non-UK resident company through the permanent establishment and through the other parts of the non-UK resident company”.

(3)Omit subsection (3).

(6)Omit—

(a)section 22 (transactions treated as being at arm’s length);

(b)section 23 (provision of goods or services for permanent establishment).

(7)In section 24 (application to insurance companies)—

(a)in subsection (2), in the words after paragraph (b), for the words from “distinct” to the end substitute “separate and independent enterprise acting as mentioned in that subsection”;

(b)omit subsections (4), (5) and (6).

(8)Omit—

(a)section 25 (non-UK resident banks: introduction);

(b)section 26 (transfer of financial assets);

(c)section 27 (loans: attribution of financial assets and profits arising);

(d)section 28 (borrowing: permanent establishment acting as agent or intermediary);

(e)section 29 (allowable deductions);

(f)section 30 (restriction on deductions: costs);

(g)section 31 (restriction on deductions: payments in respect of intangible assets);

(h)section 32 (restriction on deductions: interest or other financing costs).

(1)In section 3 (exclusion of charge to income tax), in subsection (1)(b) for “for an exemption.” substitute “is not as a result of—

(i)an exemption, or

(ii)the application of sections 1142 to 1144 of CTA 2010 (circumstances in which a company is not regarded as having a permanent establishment).

(2)In consequence of the amendment made by sub-paragraph (1), in ITA 2007—

(a)in section 816 (meaning of disregarded company income)—

(i)in subsection (1), omit paragraphs (c) and (d), and

(ii)omit subsection (2) to (4), and

(b)in section 817 (the independent broker conditions)—

(i)in subsection (1), for the words from “Kingdom” to the end substitute “Kingdom if conditions A to D are met.”, and

(ii)omit subsection (6).

Part 2Amendments to CTA 2010

(10)CTA 2010 is amended as follows.

(11)Before section 1141 (but after the heading “General”) insert—

1140AIntroduction

(1)This Chapter applies for the purpose of determining when a company has a permanent establishment in a territory for the purposes of the Corporation Tax Acts.

(2)So far as provisions in this Chapter are in substantially the same terms as Article 5 of the Model Tax Convention on Income and on Capital approved by the OECD Council on 18 November 2025 they are to be read and given effect, so far as possible, in a way that is consistent with the OECD’s commentary on that Article, also approved by the OECD Council on that date.

(3)Any reference in subsection (2) to a document approved by the OECD Council is to that document as it may be amended or replaced from time to time.

(4)And any such document is to be read in accordance with any reservation, declaration or election made by the United Kingdom in relation to that document.

(5)The Treasury may by regulations make provision—

(a)for subsection (3) not to apply in relation to any specified amendment or replacement of a document referred to in subsection (2),

(b)about the effect of any provision of a document referred to in subsection (2) that has been amended or replaced on or after 26 November 2025 where that provision is elective (however expressed), and

(c)amending subsection (2) to add a reference to a further document published by the OECD.

“Specified” means specified in regulations.

(12)In section 1141 (permanent establishment of companies), in subsection (1), for paragraph (b) substitute—

(b)a person acting on behalf of the company in the territory habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts, that are routinely concluded without material modification by the company, and the contracts are—

(i)for the transfer of the ownership of, or for the granting of the right to use, property owned by the company or that the company has the right to use, or

(ii)for the provision of services by the company.

(1)Section 1142 (agent of independent status) is amended as follows.

(2)After subsection (1) insert—

(1A)A person is not to be regarded for the purposes of subsection (1) as an agent of independent status in relation to a company where the person—

(a)is closely related to the company, and

(b)acts exclusively or almost exclusively on behalf of—

(i)the company, or

(ii)the company and other companies to which the person is closely related.

(1B)In subsection (1A), “closely related” has the meaning that it has in section 1143 (see subsection (2CA) of that section).

(3)In subsection (2)—

(a)for “apply for the purpose of supplementing subsection (1)” substitute “modify the application of this section”;

(b)at the end of paragraph (a) insert “or”;

(c)omit paragraph (c) (and the “or” at the end of paragraph (b)).

(14)In section 1143 (preparatory or auxiliary activities), for subsection (2D) substitute—

(2CA)For the purposes of this section, one person (“A”) is closely related to another person (“B”) if, based on all the relevant facts and circumstances, A has control of B or A and B are under the control of the same persons, including if the 50% investment condition is met in relation to A and B.

(15)In section 1146 (the independent investment manager conditions), in subsection (2)—

(a)after “transaction,” insert “the circumstances in which”, and

(b)for “if”, in the first place it occurs, to the end substitute “include where each of the following conditions (the independent investment manager conditions) are met.”

(1)In section 1146, omit subsection (6).

(2)In consequence of the amendment made by sub-paragraph (1)—

(a)omit section 1147 (investment managers: the 20% rule),

(b)omit section 1148 (interpretation of section 1147), and

(c)omit section 1149 (application of 20% rule to collective investment schemes).

(1)For section 1150 (meaning of investment manager and investment transaction) substitute—

1150Meaning of “investment manager” and “investment transaction”

(1)The following definitions apply for the purposes of this Chapter.

(2)An “investment manager” means a person who provides investment management services (which may include or comprise the provision of investment advice).

(3)An “investment transaction” means any transaction other than a transaction with an excluded subject matter.

(4)The following are excluded subject matters—

(a)land in the United Kingdom, and

(b)any commodity or other physical asset.

(5)But a transaction is to be treated as not having an excluded subject matter if—

(a)it is a derivative contract whose subject matter is a commodity but which does not result in the physical delivery of the commodity, or

(b)it is a derivative contract whose subject matter is an excluded subject matter only because it operates by reference to a qualifying index, provided that index is not maintained by a person who is connected to any of the parties to the transaction.

(6)For the purposes of subsection (5) a “qualifying index” means an index relating to an excluded subject matter that—

(a)is publicly available, and

(b)is an index of a substantial number of assets.

(2)In section 1171 (orders and regulations), in subsection (2)(g) omit sub-paragraph (ii).

(3)In Schedule 4 (index of defined expressions)—

(a)in the entry for “investment manager (in Chapter 5 of Part 8B)” for “1150(1)” substitute “1150”,

(b)in the entry for “investment manager (in Chapter 2 of Part 24)” for “1150(1)” substitute “1150”, and

(c)in the entry for “investment transaction (in Chapter 5 of Part 8B)” for “1150(1)” substitute “1150”.

(1)Omit section 1152 (investment managers: disregard of certain chargeable profits).

(2)In consequence of the amendment made by sub-paragraph (1), in section 20 of CTA 2009 (profits attributable to permanent establishment: introduction), omit subsection (3).

(19)In section 1142 (agent of independent status), in subsection (2)—

(a)in the words before paragraph (a) for “1151” substitute “1150”,

(b)in paragraph (a), at the end insert “or”, and

(c)omit paragraph (c) (and the “or” at the end of paragraph (b)).

(20)Omit section 1151 (Lloyd’s agents).

(1)In section 357LD (the independent investment manager conditions)—

(a)in subsection (2)—

(i)after “transaction,” insert “the circumstances in which”, and

(ii)for “if (and only if)” substitute “include where”, and

(b)omit subsection (6).

(2)Omit sections 357LE to 357LG (20% rule).

(3)In section 357LH (meaning of investment manager and investment transaction), for “1150(1)” substitute “1150”.

(4)Omit section 357LJ (disregard of certain chargeable profits).

Part 3Amendments to ITA 2007

(22)ITA 2007 is amended as follows.

(1)In section 818 (the independent investment manager conditions) omit subsection (5).

(2)In section 835M (the independent investment manager conditions) omit subsection (5).

(3)Omit sections 819 and 835N (investment managers: the 20% rule).

(4)In consequence of the amendments made by sub-paragraph (3)—

(a)omit sections 820 to 824,

(b)omit sections 835O to 835Q, and

(c)in Schedule 4 (index of defined expressions), in the table omit both entries relating to relevant disregarded income.

(1)In section 827 (meaning of investment manager and investment transaction)—

(a)in subsection (1), after “services” insert “(which may include or comprise the provision of investment advice)”, and

(b)for subsections (2) and (3) substitute—

(2)An “investment transaction” means any transaction other than a transaction with an excluded subject matter.

(3)The following are excluded subject matters—

(a)land in the United Kingdom, and

(b)any commodity or other physical asset.

(4)But a transaction is to be treated as not having an excluded subject matter if—

(a)it is a derivative contract whose subject matter is a commodity but which does not result in the physical delivery of the commodity, or

(5)For the purposes of subsection (4) a “qualifying index” means an index relating to an excluded subject matter that—

(a)is publicly available, and

(b)is an index of a substantial number of assets.

(2)In section 835S (interpretation of Chapter 2B of Part 14)—

(a)in subsection (3), for “has the same meaning” substitute “and “investment transaction” have the same meanings”, and

(b)omit subsection (4).

(25)In section 814 (meaning of “disregarded transaction income”) omit subsection (6).

(26)In section 835E (branch or agency treated as UK representative), in subsection (5) for “835K” substitute “835J”.

(27)Omit section 835K (Lloyd’s agents).

Part 4Amendments to TCGA 1992

(1)TCGA 1992 is amended as follows.

(2)In section 2B (territorial scope of charge to corporation tax on chargeable gains), in subsection (3)—

(a)in paragraph (a) omit “that have a relevant connection to the company’s UK permanent establishment (see section 2C)”;

(b)in paragraph (b), for “that permanent establishment” substitute “a UK permanent establishment (see section 2C)”;

(c)in paragraph (c), for “to 32” substitute “and 24”.

(3)In section 2C (non-UK resident company with UK permanent establishment) omit subsection (2).

Part 5Consequential amendments

(29)In FA 2011, in Schedule 19 (the bank levy), in paragraph 26—

(a)in sub-paragraph (2)—

(i)for “would have” substitute “might be expected to have”, and

(ii)for the words from “distinct” to the end substitute “separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the relevant foreign bank through the permanent establishment and through the other parts of the relevant foreign bank.”;

(b)in sub-paragraph (3), for “to 28” substitute “and 24”.

Part 6Commencement

(30)The amendments made by this Schedule have effect in relation to chargeable periods beginning on or after 1 January 2026.