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HMRC internal manual

Corporate Finance Manual

Debt cap: income from EEA group companies: payer is EEA PE of non-EEA resident company

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

Permanent establishment in an EEA territory

A company that is not resident within an EEA territory may neverthless have a permanent establishment (PE) located in such a territory. If the PE is resident in the EEA territory under the laws of that territory, then it is subject to the tax of the territory. The PE would be within Part 5 provided that the wider non-EEA company of which it is a part forms part of the worldwide group.

But it is still necessary to consider the effect of the relevant double taxation agreement. The non-EEA company may pay interest which is treated as an expense of earning profits that are, under the DTA concerned, regarded as profits taxable in the non-EEA territory rather than as profits of the PE. The group cannot claim that, for this reason alone, the company has been denied a deduction in the EEA territory and therefore the corresponding UK finance income should be disregarded. See CFM92420 for more detail about this, and an example.