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HMRC internal manual

Corporate Finance Manual

Loan relationships: computational rules: GAAP: non UK companies

Non UK companies

Companies that are not incorporated in the UK may nevertheless have to submit returns to HM Revenue and Customs either because

  • the company is tax resident in the UK, or
  • it trades in the UK through a permanent establishment.

If a company is a controlled foreign company, its chargeable profits may need to be computed for UK tax purposes.

Such companies, or permanent establishments, may draw up accounts using International Accounting Standards, particularly if they are incorporated in another EU country. But others will draw up accounts in accordance with accepted accounting practice in their country of incorporation. For example, a company incorporated in a state of the USA may use US GAAP.

FA04/S50 defines ‘generally accepted accounting practice’ as being either IAS (if the company uses that for its accounts) or UK GAAP. A non UK company (unless it uses IAS) must therefore prepare its tax computations as if it used UK GAAP.

Here, the normal approach to the interpretation of deeming provisions applies - the company must treat the deemed circumstances as if they were real, and follow through the consequences.


A non-UK bank trades in the UK through a branch. The branch draws up accounts for year ended 31 December 2005 using an accounting policy that is neither IAS nor UK GAAP. The branch must therefore compute its profits or losses on loan relationships (as well as its trading profits, derivative contract profits and other items) based on GAAP on the basis of accounts following UK GAAP.

Under CTA09/S21, the profits attributable to the branch are those that it would have made if it were a distinct and separate company, trading under the same conditions, and dealing with the non-resident company on an arm’s length basis. Equity and loan capital will be attributed to the branch on that assumption (see International Manual INTM267000+).

In preparing its CT computations on the basis of UK GAAP, the branch must decide whether the imagined stand-alone company would use FRS 26 and associated standards or ‘old UK GAAP’.

In a few cases, such a company would be required to adopt FRS 26 for periods of account beginning on or after 1 January 2005. For example, if capital properly attributed to the branch included securities listed on an EU recognised exchange, the imagined stand-alone company would be required to use FRS 26, and it will need to prepare its tax computations on that basis.

In other cases, the imagined company might not be required to adopt FRS 26, but would be permitted to do so. The branch must consider what decision a reasonable board of directors would take on voluntary adoption, were the imagined company real.