Profit fragmentation

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Profit fragmentation
  • What are profit fragmentation arrangements?
  • Who is likely to be affected by profit fragmentation?
  • Profit fragmentation adjustments

Profit fragmentation

From 1 April 2019 (6 April 2019 for income tax purposes), targeted anti-avoidance legislation tackles arrangements that involve fragmentation of business profits. The aim of these rules is to ensure that the full amount of profit derived from activity in the UK is taxed in the UK.

The rules counteract the arrangements by bringing amounts back into charge to UK tax, either by disallowing expenses or by attributing receipts back to the UK business. The targeted avoidance typically involves some or all of the profits of a UK business being diverted to an offshore entity which pays little or no tax. The provisions are not intended to target normal commercial transactions.

The profit fragmentation legislation does not override existing rules where they apply to an arrangement effectively, such as the transfer pricing regime. If other provisions have already applied to fully counteract the tax advantage, then no further adjustments are required. If the tax advantage is only partially counteracted, then adjustments should be made to counteract any remaining tax advantage.

For HMRC guidance, see INTM61000 onwards. For further detailed commentary, see S

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