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HMRC internal manual

International Manual

HM Revenue & Customs
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Foreign Permanent Establishments of UK Companies: introduction: exempt profits or losses: treaties giving additional taxing rights to the PE state

Additional taxing rights in treaties

Treaties may give states taxing rights over certain business profits irrespective of whether they are attributable to the PE.

Most treaties have such a right in relation to immovable property (INTM282020). Other taxing rights may be given in respect of certain income - for example the UK / Argentina treaty includes the following in the business profits article:

“Notwithstanding the provisions of paragraph (1), profits derived by an enterprise of a Contracting State from the activity of granting insurance or reinsurance covering property situated in the other Contracting State or persons which are residents of that other State, at the time of the conclusion of the insurance contract, may be taxed in that other State, whether or not the enterprise carries on its activity in that other State through a permanent establishment situated therein. However, in such case, the tax charged in that other State shall not exceed 2.5 per cent. of the gross amount of the premium.”

This taxing right does not require any attribution of the profits to a PE and there is therefore no such attribution for credit relief purposes (which CTA09/S18A(6) depends on). The application of exemption to these profits, to the extent that they are in fact attributable to a PE, is therefore made explicit in the legislation (S18A(10)).

Some treaties allow unrestricted taxing rights for a PE state in relation to capital gains - for example the UK / India treaty. In such cases CTA09/Ss18A(8) to (10) will also be relevant. They will include in a relevant profits or relevant losses amount all gains that are in fact attributable to a PE in the territory. It does not matter whether the foreign jurisdiction actually taxes profit falling within Ss18A(8) to (10) - as with other parts of the relevant profits calculation (see INTM281010) it is only necessary that the gain would be taken into account in the calculation. Any statutory exemption given under the law of the other jurisdiction will not prevent profits being included in a relevant profits or relevant losses amount (see INTM281040).