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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: chargeable gains: immovable property

The capital gains article of most double taxation treaties and of the OECD Model Convention allows for “gains derived …from the alienation of immovable property” to be taxed by the State in which the property is situated. This does not require any attribution of such property to a permanent establishment and there is therefore no such attribution for credit relief purposes (which CTA09/S18A(6) depends on). So the inclusion for exemption of the gains on such assets, to the extent that the assets have been used in the business of the PE, is made explicit in the legislation.

CTA09/S18B(2) specifies that “…profits which would be taken to be attributable to the permanent establishment …” at S18A(6) include any gains in relation to immovable property to the extent that is appropriate having regard to the extent that the property has been used for the business of the PE. It also applies the same principle to losses under S18A(7). So, where a company needs to compute a gain or loss on the disposal of foreign immovable property, the gain or loss will not be a chargeable gain or an allowable loss to the extent to which the property was used for the business of a PE.