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HMRC internal manual

International Manual

HM Revenue & Customs
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Foreign Permanent Establishments of UK Companies: anti-diversion rule: Chapter 7.

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

Chapter 7.

TIOPA10/Part 9A/CH7 looks at profits that arise from captive insurance business. Profits that are potentially subject to a Chapter 7 charge are those that arise from the insurance (and reinsurance) of risks originating within a UK connected group company and the insurance of risks with UK resident persons who have bought goods or services from a UK connected company. A “UK connected company” means a UK resident company connected with Company X (INTM286320) or a non-UK resident company connected with Company X acting through a UK PE.

The basic rule is adapted for captive insurance business carried on through a PE in an EEA territory, so that it only applies to the extent there is no significant UK non-tax reason for entering into the contract of insurance arrangement.

A contract of reinsurance is excluded from the Chapter 7 rules where the insured party is neither a UK resident company connected to Company X, nor a UK PE of a connected non-UK resident company


A UK insurance company ‘A’, connected to Company X, writes contracts of insurance with UK resident individuals. Company X derives profits from the reinsurance of A’s business. These profits are excluded from Chapter 7 by TIOPA10/Part 9A/S371GA(5) because the original contracts of insurance were entered into with a person not connected with Company X and are therefore outside the scope of Chapter 7.

Chapter 7 is modified by CTA09/Part 2/CH3A/S18HD which omits the reference to non EEA permanent establishments in S371GA(6)(b) which is not appropriate to foreign PE exemption.

The detailed rules for the application of Chapter 7 can be found here: