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 a charge to diverted profits tax (DPT) can arise in the context of a non-UK company that avoids creating a UK permanent establishment (PE), under the provisions of FA 2015, s 86. There are a number of significant underlying legal and direct tax issues that need to be considered in analysing what constitutes a PE 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 a notional PE of the non-resident company in the UK, in the form of the company or person with a UK 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 a PE in the UK, and that avoidance of UK corporation tax was a main purpose. This is explained in further detail below.
Broadly speaking, however, a charge to DPT arising under FA 2015, s 86 is limited to cases where there is a substantial level of economic activity in the UK. Consequently, there are three key exemptions which mean that a charge to DPT will not arise under FA 2015, s 86 where:
the foreign company’s total UK-related sales revenues in a 12-month accounting period do not exceed £10 million, and / or the foreign company’s total UK related expenses in a 12-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
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