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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: introduction: election for S18A to take effect

How to elect for exemption under CTA09/S18A

An election for branch exemption should be made to the company’s customer relationship manager (CRM), or in the absence of a CRM to the office where the company’s tax return is dealt with.

An election for branch exemption should specify the accounting periods to which the election will apply (e.g. “the accounting period commencing on … and all subsequent accounting periods”). The election must be received by HMRC before the start of the first period that it relates to.

The election must be signed by the proper officer of the company or any other person authorised by the company.

The election may optionally also specify one or more territories that will be “streamed” for the purposes of the transitional rule (CTA09/Ss18J to 18N) (see INTM284040).

The election may be withdrawn at any time until the start of the first accounting period to which it relates. After that time it becomes irrevocable. For relevant accounting periods beginning on or after 1 January 2013 the election can only be revoked by the company which made it, this still has to be prior to the relevant day. Additionally an election made by a UK resident company is revoked upon cessation of UK residency and an election made by a non-UK resident company is revoked, if having become UK resident, the company ceases to be UK resident.

An election for exemption applies from the day (the “relevant day”) on which, when the election is made, the next accounting period is expected to begin. This is not a subjective test, but an objective one based on the company’s traditional accounting date. The election will still take effect from that date even if, exceptionally, the company’s accounting period is subsequently changed so that the “relevant day” no longer coincides with the start of an accounting period. In that case the accounting period in which the relevant day falls is treated as if it were two accounting periods, one of which ends on the day before the relevant day, while the second (the first exempt period) begins on the relevant day. Thus, retrospective changes of accounting period cannot be used to create a tax advantage by the use of hindsight. For relevant accounting periods beginning on or after 1 January 2013 CTA09/S18F is amended to determine the “relevant day”, which is the day on which the foreign PE exemption begins. The amendment ensures that existing UK resident companies, new UK resident companies and companies becoming UK resident can all access the exemption.

If a company changes its accounting period before it makes an election that will affect when the “relevant day” falls. If the election is made in the accounting period with the changed accounting date the “relevant day” will be the day after that changed accounting date.

Prior to 1 January 2013 onwards a company that becomes UK resident may arrange to have a short accounting period in which it makes the election for exemption which would then apply to all subsequent accounting periods.

There is no special form for the election and no prescribed wording, but its meaning must be made clear and it must include an unambiguous and accurate specification of the accounting periods to which it will relate. FA98/SCH18/PARA58 will give effect to TMA70/SCH1A in relation to this election.

A company may elect into exemption at a time when it has no foreign permanent establishments. The election will have no effect until the company holds a foreign PE, but it will become irrevocable in the same way as an election made by a company with a foreign PE. A UK resident company that is a partner in a UK partnership can make an election in respect of its share of the profits of a foreign permanent establishment of the partnership.