The following Corporation Tax guidance note Produced by Tolley in association with Paul Bowes provides comprehensive and up to date tax information covering:
This guidance note sets out the circumstances in which acharge to diverted profits tax (DPT) can arise in the context of anon-UK company that avoids creating aUK permanent establishment (PE), under the provisions of FA 2015, s 86. There are anumber of significant underlying legal and direct tax issues that need to be considered in analysing what constitutes aPE for this purpose. Please refer to the Permanent establishment guidance note for further details.
To summarise, the main purpose of FA 2015, s 86 is to challenge certain artificial arrangements and to bring them into charge to UK tax. In order to bring the profits arising from such arrangements into charge, FA 2015, s 86 deems there to be anotional PE of the non-resident company in the UK, in the form of the company or person with aUK presence providing related services or generally undertaking related UK activity (referred to as the ‘avoided PE’ under FA 2015, s 86). HMRC must demonstrate that the arrangements were in fact designed to avoid aPE in the UK, and that avoidance of UK corporation tax was amain purpose. This is explained in further detail below.
Broadly speaking, however, acharge to DPT arising under FA 2015, s 86 is limited to cases where there is asubstantial level of economic activity in the UK. Consequently, there are three key exemptions which mean that acharge to DPT will not arise under FA 2015, s 86 where:
the foreign company’s total UK-related sales revenues in a12-month accounting period do not exceed £10 million, and / or the foreign company’s total UK related expenses in a12-month period do not exceed £1 million (these amounts are proportionately reduced for short accounting periods
the avoided PE is ‘excepted’
both the avoided PE and the foreign company are small or medium-sized enterprises, and the tax avoidance condition is not met
These exemptions are explained in
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