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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - excluded countries: Permanent establishment income

SI1998/3081 Regulations 5(3)(e) and 6

Subject to SI1998/3081 regulation 6(2), where the controlled foreign company has a permanent establishment outside its territory of residence the net income or gains that arise in or are derived from that permanent establishment will be treated as non-local source income. The net amount means the amount of income or profits after deduction of expenses but before tax as determined in accordance with a generally accepted method of accounting for profits of permanent establishments. The net amount as a measure of those profits does not, however, apply where the gross income in INTM254520 (a), (b), (c) and (d) in total exceeds the net amounts of the permanent establishment. In that case the aggregate of the gross amounts will be the measure of the income of the permanent establishment. See the examples at INTM254590.