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HMRC internal manual

Corporate Finance Manual

Debt Cap: gateway test: definition of relevant liabilities: UK permanent establishments

Example: UK permanent establishments

Where a foreign company trades in the UK through a permanent establishment, the company may not draw up separate financial statements for the permanent establishment.

ICTA88/S11AA provides that the profits of a UK permanent establishment should be calculated as though it were a distinct and separate enterprise and includes an assumption regarding the equity and loan capital that that the separate enterprise would have. Where a UK permanent establishment is a relevant group company its relevant liabilities are established after the application of section 11AA.

For example, if the UK permanent establishment is deemed to have loan capital of £400 million and equity of £100 million instead of loan capital of £500 million, the relevant liability is £400 million.