Corporation Tax: double taxation relief and permanent establishment losses
Published 22 November 2017
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Who is likely to be affected
Companies with an overseas permanent establishment (PE) where losses of the PE have been relieved against non-PE profits in the foreign jurisdiction.
General description of the measure
The measure restricts the amount of credit allowed or deduction given in the UK for foreign tax suffered by a company with an overseas PE where losses of the PE have been set off against profits other than of the PE in the foreign jurisdiction.
Policy objective
The measure reinforces the UK’s double taxation relief (DTR) policy that relief for foreign tax should only be given where profits have been doubly taxed, once in the UK and once in a foreign jurisdiction.
Background to the measure
The measure was announced at Autumn Budget 2017.
Detailed proposal
Operative date
These changes will have effect for accounting periods ended on or after 22 November 2017 with a transitional rule applying where the accounting period straddles 22 November 2017.
Current law
Part 2 of Taxation (International and Other Provisions Act) 2010 (TIOPA 2010) sets out rules allowing foreign tax to be credited against UK tax in certain circumstances.
The overarching principle of the DTR rules is that relief is allowed against UK tax on the same income or gain on which foreign tax has been suffered.
Proposed revisions
Legislation will be introduced in Finance Bill 2017-18 to include a new section 71A in Part 2 of TIOPA 2010 to restrict the amount of credit allowed or deduction given for foreign tax where the company has received relief for losses against non-PE profits in the foreign jurisdiction.
The amount of double taxation relief available will instead be determined by reference to the amount of foreign tax suffered by the overseas PE, less the amount of the reduction in foreign tax which results from the PE’s losses being relieved against non-PE profits in a foreign jurisdiction in the same or earlier periods.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact. This measure supports the Exchequer in its commitment to protect revenue.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be any impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure affects companies with foreign branches that are part of certain foreign structures where the branch has losses. For some companies, the amount of credit allowed or deduction given in the UK for foreign tax suffered will be restricted. The measure is expected to have a negligible impact on businesses admin burdens. One-off costs include familiarisation with the new rules including, for companies with an accounting period straddling 22 November 2017, the transitional rule. It is not expected that there will be any on-going costs. There is no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs or other)
HM Revenue and Customs will incur negligible costs implementing this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through regular communication with taxpayers and practitioners affected by the measure.
Further advice
If you have any questions about this change, please contact Daniel Berry on Telephone: 03000 585 972 or email: daniel.berry@hmrc.gsi.gov.uk or Forida Haque on Telephone: 03000 594 914 or email: forida.haque@hmrc.gsi.gov.uk .