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HMRC internal manual

General Insurance Manual

Non-resident insurers: scope of UK taxing rights: section 11 ICTA and OECD Model Treaty: introduction

As explained at GIM10115, the charging provision is in domestic legislation and is subject to (meaning its scope may be limited by) an applicable double tax treaty, which is generally modelled on the OECD Model Convention.

The relevant Articles in the Model are Article 5, which defines ‘permanent establishment’, (GIM10121) and Article 7, the Business Profits Article (but see GIM10235 regarding interaction with other Articles). Article 7(1) allows tax to be charged on the profits of a UK permanent establishment, “but only so much of them as is attributable to that permanent establishment”. Article 7(2) then gives the rules for attribution, providing that the permanent establishment will have attributed to it “the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment”. Finally, Article 7(3) provides that in determining the profits to be attributed “there shall be allowed as deductions expenses which are incurred for the purpose of the permanent establishment”, whether the expense is incurred in the State in which the permanent establishment is situated or elsewhere.

For accounting periods beginning on or after 1 January 2003

  • a revised charging provision applies: ICTA88/S11 as amended by FA03/S149 – see GIM10122
  • the rules for attributing profits and allowing expenses are set out at ICTA88/S11AA and ICTA88/SCHA1, see GIM10123 and GIM10124.