Foreign branch exemption—exemptions from the anti-diversion rule
Produced in partnership with Robert O’Hare of Squire Patton Boggs
Foreign branch exemption—exemptions from the anti-diversion rule

The following Tax practice note produced in partnership with Robert O’Hare of Squire Patton Boggs provides comprehensive and up to date legal information covering:

  • Foreign branch exemption—exemptions from the anti-diversion rule
  • Assumptions for the application of the exemptions
  • Exemption 1—excluded territories exemption
  • Excluded territories exemption—types of income
  • Exemption 2—low profits exemption
  • Exemption 3—low profit margin exemption
  • Exemption 4—tax exemption

Foreign branch exemption—exemptions from the anti-diversion rule

This Practice Note only describes the foreign branch exemption anti-diversion rules that apply to accounting periods commencing on or after 1 January 2013. The general scope of the anti-diversion rule is explained in Practice Note: Foreign branch exemption—anti-diversion after 1 January 2013.

For a description of the anti-diversion rules that applied in relation to periods commencing before that date, and now of largely historic interest only, see Practice Note: Foreign branch exemption—anti-diversion before 1 January 2013 [Archived].

Broadly based on, and aligned with, the UK’s CFC rules, the anti-diversion rule incorporates many of the same principles and terms, and adopts many of the same operational mechanisms. It is designed to prevent certain profits that have been diverted from the UK from qualifying for exemption (and therefore those profits are subject to UK corporation tax with credit for any foreign tax paid, in the usual way). For an introduction to the principles underpinning the UK’s CFC regime, see Practice Note: CFC rules—calculating the CFC tax charge.

When determining its profits, it is necessary for a company that has made a foreign branch exemption election (company X) to consider the anti-diversion rule:

  1. in any relevant accounting period (period X)—ie any accounting period to which a foreign branch exemption election applies

  2. in relation to a particular territory outside the UK (territory X) in which

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