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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: anti-diversion rule: Chapter 4.

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

Chapter 4.

TIOPA10/Part 9A/CH4 looks at the profits attributable to UK activities and applies if none of the 4 excluding conditions in Chapter 3 are satisfied. Chapter 4 uses a step process to determine if any of the assumed total profits of Company X (INTM286320) are attributable to UK activity carried out by a company connected to Company X and could therefore pass through the Diverted Profits Gateway. Non-trading finance profits and property business profits are excluded from the assumed total profits for the purposes of this chapter. Non-trading finance profits are considered in Chapter 5 and property business profits are outside the scope of the regime.

Chapter 4 is modified by CTA09/Part 2/CH3A/S18HB for foreign PE exemption purposes by omitting TIOPA10/Part 9A/S371DA which is a reference to SPFs carried on in the UK by the CFC other than through a UK permanent establishment, This is because modified Chapter 4 only looks to identify UK SPFs carried out by a company connected with Company X as UK management activity carried out by Company X will have been taken into account in the attribution of profit undertaken in order to arrive at the adjusted relevant profits amount.

The mechanical provisions of the trading safe-harbour in Chapter 4 are also modified by inserting a reference into S371DH(4) to cover banking business regulated in the UK. This is to address the fact that Company X is likely to be regulated in the UK. The definition of related persons within S371VF is also modified for Chapter 4 purposes in order to apply solely to a person connected or associated with Company X.

The detailed rules for the application of Chapter 4 can be found here