Foreign branch exemption—foreign permanent establishments amount
Produced in partnership with Robert O’Hare of Squire Patton Boggs
Foreign branch exemption—foreign permanent establishments amount

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—foreign permanent establishments amount
  • Exceptions
  • Dealing in or developing UK land
  • Non-resident capital gains (NRCGT)
  • Definition of FPEA
  • Relevant profits amounts and relevant losses amounts
  • Relevant profits amount
  • Relevant losses amount
  • Minimisation of profits
  • Unusual treaty provisions
  • More...

As explained in Practice Note: Foreign branch exemption—structure of the foreign branch exemption, the concept of the foreign permanent establishments amount (FPEA) is the key determining factor in how much profit is exempted from UK tax by the foreign branch exemption. This is because, where an election is in effect, any profit or loss taken into account in arriving at the FPEA must be left out of account (by making appropriate ‘exemption adjustments’) in calculating the company's taxable total profits.

Exceptions

There are two significant exceptions to the rules, discussed in turn below.

Dealing in or developing UK land

First, in order to combat tax avoidance structures, utilising foreign permanent establishments (PE), UK profits and losses of a company's trade of dealing in or developing UK land are not to be left out of account—ie the foreign branch exemption does not apply and no exemption adjustments are to be made, with the effect that such profits and losses will be taxed in the UK (with credit for any foreign tax paid) in the usual way—see Practice Note: UK taxation of foreign profits in a UK resident company. The rule prevents corporate developers of UK property from obtaining the foreign branch exemption if they carried on that UK property development activity through an overseas PE.

These special, anti-avoidance measures, introduced as part of a much wider package of measures to

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