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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: anti-diversion rule: motive test

This applies for relevant periods beginning before 1 January 2013.

CTA09/S18H: the motive test

Both conditions A and B of the motive test in CTA09/S18H must be satisfied. Each condition looks at the facts and circumstances of each accounting period separately, so it is possible for the permanent establishment to fail the conditions in one accounting period, but pass them in a subsequent one. Whether the conditions are met will require a review of the facts of each case.

Condition A is based on the transactional leg of the current CFC regime’s motive test. It looks at whether one of the main purposes of the relevant transaction is to achieve a reduction in UK tax. See INTM286040 for more details.

Condition B is based on the ‘diversion of profits’ leg of the existing motive test. It will apply to PEs which are used to reduce UK tax but which may not be undertaking transactions directly with the UK. This condition focuses on whether the diversion of profits from the UK is one of the main reasons for the company carrying on its business through that PE. See INTM286050 for more details.