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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Non-resident insurers: scope of UK taxing rights: background

By virtue of ICTA88/S8 a company is charged to corporation tax on all its profits, wherever arising “subject to any exceptions provided by the Corporation Tax Acts”. ICTA88/S6 provides that corporation tax is charged on the profits of companies and excludes a double charge to income tax and corporation tax. The otherwise wide scope of corporation tax is cut back for non-UK resident companies by ICTA88/S11. Before the changes made by FA03/S148 to ICTA88/S150 the charge to corporation tax on non-resident general insurers (as for other non- resident companies) for accounting periods ending before 1 January 2003 was expressed in the following terms – ICTA88/S11 (2)(a):

  • trading income arising directly or indirectly through or from the branch or agency, and
  • any other income from property or rights used by, or held by or for, the branch or agency (including income falling within Case V)
  • but excluding distributions received from companies resident in the United Kingdom,and for gains ICTA88/S11 (2)(b):

  • chargeable gains falling within TCGA1992/S10 (3)
  • on assets situated in the UK and used in or for the purposes of the trade at or before the time the gain accrued
  • on assets situated in the UK and used or held for the purposes of the branch or agency before that time
  • on assets acquired for use by or for the purposes of the branch.The branch or agent was treated as the tax representative of the company and liable for the tax and to perform all necessary administrative functions such as making returns - FA95/S126 and FA95/SCH23.

FA03 made the following changes, for accounting periods beginning on or after 1 January 2003

  • replaced the reference to ‘branch or agency’ with a reference to ‘permanent establishment’, defined at FA03/S148
  • revised the ICT88/S11 charging provision – see GIM10122
  • introduced (FA03/S149) a new ICTA88/S11AA and ICTA88/SCHA1 on the determination of profits attributable to a permanent establishment
  • treats a permanent establishment as the tax representative (FA03/S150).These changes had the effect of bringing UK law closer in wording to international law, using the broader ‘permanent establishment’ term and aligning more closely with the concepts of the OECD Model Tax Convention. The explicit exclusion of distributions disappeared as covered by ICTA88/S208.

An overseas insurer (not trading through a UK resident subsidiary) will normally carry on UK insurance activities through what amounts to a permanent establishment. Business carried on in the UK refers to where the activity takes place, and not necessarily the location of the risks. See also GIM10060 dealing with the regulatory position.