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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: anti-diversion rule: Initial gateway filter - Does Chapter 5 apply?

This applies for relevant accounting periods beginning on or after 1 January 2013.

Does Chapter 5 apply?

TIOPA10/Part 9A/CH 5 will apply if company X (INTM286320) has non-trading finance profits that are not otherwise excluded by the detailed rules in TIOPA10/Part 9A/S371CB, S371CC and S371CD modified for foreign PE purposes by excluding provisions related to holding companies and exempt distribution income which are not appropriate to foreign PE exemption.

Incidental non-trading finance profits that arise from investments held for the purposes of exempt trading activity or property business of Company X (S371CB) or constitute 5% or under of its EBIT exempt trading and/or property business profits (S371CC) are excluded from Chapter 5 under these sections. (Exempt trading activity means business that does not pass through the Diverted Profits Gateway.) Further, if Company X has non-trading finance profits derived from a “qualifying loan relationship”, it may claim that the profits arising should be dealt with under Chapter 9 (exemptions for profits from qualifying loan relationships) instead of Chapter 5. Such a claim would apply to all of Company X’s qualifying loan relationships extant during the accounting period excluding those that are already taken out of the regime because they are incidental to the exempt trading activity or property business of the company or pass the 5% incidental income test.