The UK provides an elective exemption from UK corporation tax for the profits of an overseas permanent establishment (PE) of a UK company (other than certain insurance companies). The term ‘foreign permanent establishment’ is used in UK tax law to refer to those overseas operations of a company which were previously described as a ‘branch’.

Where an election is made under these rules, the profits and losses of all of a UK company’s PEs will be exempt from UK corporation tax. Before making this election it is therefore sensible to consider the current and anticipated future tax position of any existing PEs of the company, and whether certain trades should be moved to a different group company.

The calculation of the amount of exempt profits and losses is not straightforward. The calculation initially follows the rules in Article 7 of the OECD Model Tax Treaty (or where the UK has a treaty in place with the relevant jurisdiction, the equivalent rules in that treaty) to determine the initial attributable profits or losses. Chargeable gains are