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HMRC internal manual

International Manual

HM Revenue & Customs
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Foreign Permanent Establishments of UK Companies: chargeable gains: introduction


In general the provisions of CTA 09/S18A apply to gains and losses computed for the purpose of corporation tax on chargeable gains in a similar way as they do to other profits or losses attributable to a permanent establishment. They are to be “left out of account” to the extent that the State in which the PE is situated may exercise taxing rights in accordance with the relevant treaty. A gain that is left out of account is to that extent not a chargeable gain. Similarly a loss that is left out of account is to that extent not an allowable loss.

Both the business profits and capital gains articles of treaties may be relevant. Paragraph 4 of the Commentary on Article 13 (Capital Gains) of the OECD Model Tax Convention explains that the right to tax capital gains will normally be given to the State which is entitled to tax both the property and the income derived from it. It goes on to say that it is unnecessary to have special provisions as to whether the Article on capital gains or that on the taxation of business profits should apply.

A company that has opted into branch exemption should prepare a computation of all its gains and losses in the same way as it would have done for credit relief. “Exemption adjustments” should be made under CTA09/S18A(1) and (2) as appropriate to secure that gains and losses attributable to a PE (see INTM282030) are excluded in computing chargeable gains and allowable losses and so are left out of account in calculating the taxable total profits of the company.

Gains or losses realised on an asset will only be included in a relevant profits or relevant losses amount if the asset is both owned by the company of which the PE is a part and is properly attributed to the PE under the relevant treaty - generally where it is used wholly or partly for the purposes of that PE.

If an asset that is at all relevant times owned by group company A, but is wholly or partly used for the purposes of a trade carried on by the PE of another group member company B, the gain on disposal will be that of company A.