Commentary

D4.714 Multinational payee deduction / non-inclusion arrangements—qualifying conditions

Corporate tax
Corporate tax | Commentary

D4.714 Multinational payee deduction / non-inclusion arrangements—qualifying conditions

Corporate tax | Commentary

D4.714 Multinational payee deduction / non-inclusion arrangements—qualifying conditions

This provision is aimed at structures involving payments to a company with a permanent establishment from an entity in a third country1. Most commonly, the mismatch arises because of differential applications of the permanent establishment standard: the parent jurisdiction views the income as arising to the permanent establishment and thus exempts it from tax, while the permanent establishment jurisdiction does not recognise that a permanent establishment exists at all, or does not treat the income as effectively connected to it. These rules can apply where the UK is the parent jurisdiction or the payer jurisdiction2. In practice, the structures most likely to be caught are those where loans are made by foreign branches where the parent company attributes some or all of its interest income to its foreign branch such that the income is not taxable in the parent company's jurisdiction. Many jurisdictions, including the UK, will not tax profits attributed to a permanent establishment unless they are attributable to a trade carried on by the permanent establishment.

An arrangement will fall within these rules if the following conditions are met3:

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