Corporation Tax

Foreign ‘branch’ exemption ― overview

Produced by Tolley in association with Anne Fairpo
  • 02 Nov 2021 09:21

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

  • Foreign ‘branch’ exemption ― overview
  • Chargeable gains and the branch exemption
  • Anti-avoidance and the branch exemption
  • Transitional rules where overseas losses relieved against UK profits

Foreign ‘branch’ exemption ― overview

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.

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 included and notional capital allowances are then deducted, as are certain interest payments. All available claims and elections that would reduce the profits are assumed to have been made.

This is a complex calculation and unlikely to be simpler than the calculations required for credit relief.

The election applies to a company only. Where the company is part of a group, that el

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