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HMRC internal manual

International Manual

UK residents with foreign income or gains: income arising abroad: Branch profits - arm's length principle

As indicated in INTM153080, agreements normally provide that where a UK enterprise has a permanent establishment in the other country, the profits attributed to it should be such profits as it might be expected to make if it were a separate enterprise dealing at arm’s length with the UK enterprise. Any case where it seems doubtful whether the foreign profits have been computed for the purposes of foreign tax on an acceptable arm’s length basis should be referred to CSTD Business, Assets & International, Transfer Pricing Team.