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HMRC internal manual

International Manual

Non-residents trading in the UK: domestic law permanent establishment/branch or agency

Permanent establishment - domestic law definition - CTA2010/S1141

The definition of domestic law permanent establishment is at CTA2010/S1141. This is similar to and has the same broad effect as the OECD model treaty article 5 definition of permanent establishment which is an important factor bearing in mind that treaty law takes precedence over domestic law. So it is unlikely that the application of a treaty that followed the model article 5 would cause any variance to the UK domestic charge to tax on a non-resident trading in the UK through a permanent establishment as defined under domestic law. Because of the similarities of wording and effect between PE under domestic law and under the OECD model treaty the guidance on interpretation of treaty PE at INTM266000 is understandably substantially applicable to domestic law PE as well.

A lot of our interpretation of treaty PE is based on the Commentary to Article 5 of the OECD Model Treaty (INTM266030). Although the Commentary is not imported into UK domestic law the UK has contributed to and agreed the content except in specific instances where the UK has put on record either an observation or a reservation to a specific section of the Commentary. So, where the wording of the UK domestic law PE provisions are the same as those used in the OECD Model Treaty Article 5 then the commentary interpretation on those words will apply to those provisions and this guidance will contain cross-references into the guidance on treaty PE at INTM266000. If the Commentary interpretation of PE were to materially vary through periodic update or amendment the changes would have to be accepted by the UK Parliament before they could be taken to apply also to interpretation of UK domestic law PE.

Under the CTA2010/S1141 definition, a non-resident company has a domestic law permanent establishment in the UK if:

  1. it has a fixed place of business here through which the business of the company is wholly or partly carried on, or
  2. an agent acting on behalf of the company has and habitually exercises here authority to do business on behalf of the company. (As long as that agent is not of independent status acting in the ordinary course of his business.)

The domestic law definition goes on to give some non-exhaustive examples of places of business that are ‘fixed places of business’ such as:

  1. a place of management,
  2. a branch,
  3. an office,
  4. a factory,
  5. a workshop,
  6. an installation or structure for the exploration of natural resources,
  7. a mine, an oil or gas well, a quarry or any other place of extraction of natural resources,
  8. a building site or construction or installation project.

There is no permanent establishment in the UK if the activities here, whether through a fixed place of business or an agent, in relation to the business as a whole, are preparatory or auxiliary in character. The statutory definition gives some examples of activities that are preparatory or auxiliary as follows:

  1. The use of facilities for the purpose of storage, display or delivery of goods or merchandise belonging to the company,
  2. The maintenance of a stock of goods or merchandise belonging to the company for the purpose of storage, display or delivery,
  3. The maintenance of a stock of goods or merchandise belonging to the company for the purpose of processing by another person,
  4. Purchasing goods or merchandising, or collecting information, for the company.

The benchmarks to gauge the activities against are those of the trade as a whole entity. So, if the UK activities are no different to the essence of the trade, e.g. the UK personnel collect market research information and the non-resident company’s main trade is concerned with market research, then the activities in the UK would not be preparatory or auxiliary and there could be a permanent establishment in the UK. See the guidance on preparatory or auxiliary in the context of treaty permanent establishment at INTM266120.