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HMRC internal manual

International Manual

Non-residents trading in the UK: profits of the PE: Introduction to attribution

Non-residents process map:- In all cases where you are considering the potential chargeability of a non-resident you should consider the facts of the case in the process illustrated below. The relevant guidance for each stage of consideration is sign-posted accordingly. Stages 1 and 2 of the process map laid out below should already have been considered. This chapter of the guidance concerns stage 3 and specifically considers the concept of how the UK chargeable profits in respect of a non-resident are quantified. Where an enquiry into a non-resident is concerned stage 4 (whether any tax liability can be collected) of the process should equally be under consideration from the outset.

Stage 1

Is there a charge under domestic legislation on the activities in question? If there is not, you need consider the case no further. [INTM261000 to INTM264120]

Stage 2

If the non-resident is a resident of a state with which we have a Double Taxation Agreement, does the treaty restrict the domestic charge? [INTM265010 to INTM266160]

Stage 3

How much are the chargeable profits that can be taxed in the UK? [INTM267010 to INTM267170]

Stage 4

Having established that there is a domestic charge and having taken account of the effects of the relevant treaty, how do we assess and collect any tax that is due? [INTM268010 to INTM268050]  

Where a non-resident carries on a trade partly in the UK and partly abroad, the UK charge is limited under both the domestic profits attribution provisions (INTM267030) and the model treaty business profits article attribution provisions (INTM267160) to the profit from or associated with the UK operations. For example if the trade consists of selling in the UK goods manufactured abroad, it is only the selling profit and not the manufacturing profit that comes within the scope of UK taxation.