Jisun Choi

This Practice Note explains the anti-diversion rule, which is an anti-avoidance rule in the foreign branch (or foreign permanent establishment) exemption. This version of the rule applies for accounting periods beginning on or after 1 January 2013. It is intended to prevent a company from artificially diverting profits out of the UK and into an exempt foreign permanent establishment. This Practice Note is produced in partnership with Jisun Choi of Skadden.

ARCHIVED: This Practice Note has been archived and is not maintained. This Practice Note explains the anti-diversion rule that applies which is an anti-avoidance rule in the foreign branch (or foreign permanent establishment) exemption. This version of the rule applies for accounting periods beginning before 1 January 2013. It is intended to prevent a company from artificially diverting profits out of the UK and into an exempt foreign permanent establishment. This note explains the three conditions that must apply for profits to be treated as diverted (and therefore not exempt from UK tax): the lower level of tax test is met; the adjusted relevant profits amount is at least £200,000; and the motive test is not met.

This Practice Note explains the diverted profits gateway which forms part of the anti-diversion rule in the foreign branch (or foreign permanent establishment (PE)) exemption. This version of the rule applies for accounting periods beginning on or after 1 January 2013. This gateway is based on the CFC charge gateway and is aimed at identifying profits of foreign PEs that have been diverted from the UK. This Practice Note is produced in partnership with Jisun Choi of Skadden.

This Practice Note explains the four exemptions from the anti-diversion rule in the foreign branch (or foreign permanent establishment (PE)) exemption. This version of the rule applies for accounting periods beginning on or after 1 January 2013. The four exemptions are for low profits, low profit margin, excluded territories and not subject to a lower level of tax and are based on the CFC exemptions. This Practice Note is produced in partnership with Jisun Choi of Skadden.

This Practice Note explains how a company determines the amount of its foreign permanent establishments amount (FPEA). If a company has made a foreign branch (or foreign permanent establishment) exemption election, it must calculate its FPEA in every accounting period. The FPEA is the aggregate of relevant profits amounts less the aggregate of relevant losses amounts for all territories in which the company has a PE. Any profit or loss that is taken into account in calculating the FPEA must be left out of account in calculating the company’s taxable total profits (ie is exempt from UK tax). This Practice Note is produced in partnership with Jisun Choi of Skadden.

This Practice Note explains the special rules that apply to companies that have incurred losses in the six-year period prior to making a foreign branch (or permanent establishment (PE)) exemption election. If the company has incurred such historic losses (ie has a total opening negative amount (TONA)), the application of the exemption is deferred until sufficient profits have been generated in the PEs of that company (whether as a whole (matching) or allocated to specific PEs (streaming)) to equal those historic losses. This Practice Note is produced in partnership with Jisun Choi of Skadden.

This Practice Note explains the changes made to other tax rules to accommodate the foreign branch (or foreign permanent establishment (PE)) exemption. The main changes relate to the capital gains no gain no loss provisions; the intangible fixed asset no gain no loss provision; and the disposal value for capital allowances purposes for the disposal event that is triggered by the entry into a foreign branch exemption election. There are also changes made to the CFC, withholding tax, and corporation tax deductions on employee share acquisitions rules. This Practice Note is produced in partnership with Jisun Choi of Skadden.

This Practice Note explains the purpose of the foreign branch exemption (foreign permanent establishments exemption) ie to enable a UK resident company with operations overseas that constitute a PE to elect not to be taxed in the UK on the profits of those PEs. This Practice Note summarises the rules for electing into the regime, how the exemption is applied in the UK company’s calculation of corporation tax due and the anti-avoidance provisions that prevent certain profits from being exempt from UK tax and delay entry into the exemption for companies with historic losses. This Practice Note is produced in partnership with Jisun Choi of Skadden.

This Practice Note sets out the key issues a UK resident company with foreign profits should consider regarding the scope of UK corporation tax and the foreign tax relief available to it, ie double tax treaty relief by way of credit, unilateral foreign tax credit or relief by way of deduction of foreign tax. This note assumes that the company has not made an election to exempt its foreign branch profits. This note also summarises what a UK resident company can do with losses generated overseas. This Practice Note is produced in partnership with Jisun Choi of Skadden.