Permanent establishment

By Tolley in association with Robert Langston of Saffery Champness

The following Corporation Tax guidance note by Tolley in association with Robert Langston of Saffery Champness provides comprehensive and up to date tax information covering:

  • Permanent establishment
  • Introduction
  • Definition of permanent establishment
  • Calculation of profits and losses
  • Further reading


A company that is not resident in the UK will only be subject to UK corporation tax if it carries on a trade in the UK through a permanent establishment. Where it does so, it will be subject to UK corporation tax on all profits that are attributable to the UK permanent establishment. There is an exception to this rule for any person dealing in and developing UK land ― see the Transactions in UK land guidance note for further information.

CTA 2009, s 5(2)

This guidance note outlines when an overseas company will have a permanent establishment in the UK and how to calculate the profits attributable to that permanent establishment.

The same principles may apply when determining whether a UK company has a permanent establishment in another country.

In any case, where a double tax treaty is in place, this will typically provide that a UK company is only subject to tax in another country if it has a permanent establishment there. Most of the UK’s double tax treaties follow the OECD model tax treaty and the definition of permanent establishment is therefore the same as the UK definition.

Special rules exist for companies operating in the offshore oil and gas sector. For further discussion of these rules, see Simon’s Taxes D4.401 (subscription sensitive).

As part of the OECD’s base erosion and profit shifting (BEPS) project, changes have been proposed under Action 7: 2015 Final Report  on preventing the artificial avoidance of permanent establishment status, published in October 2015. These changes will be included in the next update to the OECD model tax convention, but it is expected that many of the main principles will be followed in the meantime.

In addition, new hybrid mismatch rules will apply from 1 January 2017 to deny a tax deduction in the UK where there is a

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