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HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
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Non-residents: UK income: Exclusions

The Article also lists certain activities which are not to be treated as permanent establishments even if they are carried on through a fixed place of business. In general, where the non-resident enterprise has a fixed place of business which is used only for storage, display or delivery of goods belonging to the enterprise, or for the purchase or collecting information for the enterprise, such fixed place will not be a permanent establishment. A fixed place of business used solely for activities of a preparatory or auxiliary nature is also excluded.

In deciding whether or not a fixed place of business of a non-resident enterprise is used for activities of a preparatory or auxiliary nature, consider the following factors

 

 

a) Are the services it performs so remote from the actual realisation of profits by the enterprise that it would be difficult to allocate any part of the profit to the fixed place of business? If they are, then the fixed place of business will not be a permanent establishment.
b) Does the activity of the fixed place of business form an essential and significant part of the enterprise as a whole? A fixed place of business whose general purpose is identical to the general purpose of the enterprise is not used for activities of a preparatory or auxiliary nature. Examples of this are fixed places of business used for the purpose of managing an enterprise, or where a fixed place of business is maintained to supply spare parts of machinery supplied by the enterprise to customers and to service such machinery.

Note that the exclusion of activities of a preparatory or auxiliary nature from the definition of a permanent establishment only applies if these activities are solely for the non-resident enterprise. If the activities are performed not only for the enterprise but for other enterprises, including other companies in the same group, then the fixed place of business will not be within the scope of the exclusion.

Where a fixed place of business is used both for activities which are deemed not to give rise to a permanent establishment and for other activities, it is treated as one permanent establishment and the profits of both activities will be taxable.