Corporation Tax

Calculating taxable diverted profits ― avoided PE cases

Produced by Tolley in association with Paul Bowes
  • 19 Oct 2021 22:52

The following Corporation Tax guidance note Produced by Tolley in association with Paul Bowes provides comprehensive and up to date tax information covering:

  • Calculating taxable diverted profits ― avoided PE cases
  • Step one
  • Step two
  • (i) Calculation of profits where only tax avoidance condition is met
  • (ii) Calculation of profits where mismatch condition is met using actual provision
  • (iii) Calculation of profits where mismatch condition is met using relevant alternative provision
  • Estimating taxable diverted profits for charging notices

Calculating taxable diverted profits ― avoided PE cases

Step one

Once it has been established that a charge to diverted profits tax (DPT) has arisen in accordance with the conditions of FA 2015, s 86, as set out in the DPT ― avoidance of UK permanent establishment guidance note, it is then necessary to calculate the quantum of the non-UK company’s profits (if any) that will be subject to the charge. The aforementioned guidance note should be read prior to reading this one.

There are three statutory ways in which the amount of taxable diverted profits may be determined, under FA 2015, ss 89, 90 and 91 (although there are technically four if sections 91(4) and 91(5) are considered separately), which are set out in Step two below. In order to determine which of these methods apply, it is necessary to determine whether or not the ‘mismatch condition’ (defined in the DPT ― avoidance of UK permanent establishment guidance note) applies and, if so, whether or not the ‘actual provision condition’ (defined below) then applies at the same time. This latter concept plays an important part in the calculation of taxable diverted profits involving ‘mismatch condition’ arrangements under FA 2015, ss 90 and 91. FA 2015, s 89 deals with avoided PE situations not involving ‘tax mismatch condition’ arrangements, ie where the ‘tax avoidance condition’ solely applies.

The comments above reflect the flowchart shown in HMRC’s guidance notes to calculate diverted profits under FA 2015, ss 89–91. In ascertaining the circumstances where an avoided PE may exist under FA 2015, s 86, either the ‘mismatch condition’ or ‘tax avoidance condition’, or both conditions must apply for a charge to DPT to arise. In practice, there is a high likelihood in avoided PE circumstances that the ‘tax avoidance condition’ applies, whether or not the ‘mismatch condition’ applies. This is expanded upon in the DPT ― avoidance of UK permanent establishment guidance note in relation to the commentary on

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

Think Tax.
Think Tolley.

Critical, comprehensive and up-to-date tax information

LEARN MORE LEARN MORE

Popular Articles

Tax returns to date of death

Personal representatives are responsible for finalising the deceased’s tax affairs. They must file outstanding tax returns and claim any repayments due.For many estates where the deceased’s tax was deducted under PAYE on pensions or employment, a refund is likely to arise because the deceased is

19 Oct 2021 23:13 | Produced by Tolley Read more Read more

Bare trusts ― income tax and CGT

This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes. Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent. This means that no tax liability falls on the trustees

27 Oct 2021 19:01 | Produced by Tolley Read more Read more

Payment of tax due under self assessment

Normal due dateIndividuals are required to pay any outstanding income tax, Class 2 and Class 4 national insurance and capital gains tax due for the tax year by 31 January following the end of the tax year (ie 31 January 2021 for the 2019/20 tax year). From 6 April 2020, UK resident individuals who

27 Sep 2021 07:14 | Produced by Tolley Read more Read more