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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: anti-diversion rule: Chapter 12 - Low Profits Exemption

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

Chapter 12 - Low profits Exemption

The low profits exemption (TIOPA10/Part 9A/CH12) provides an entity-level exemption for CFCs with low levels of profits (broadly £500,000 or under) in an accounting period that accordingly represent a low risk to the UK tax base.

The exemption is subject to a number of safeguards against possible avoidance activity.

Chapter 12 is modified to apply to foreign PEs by CTA09/Part 2/CH3A/S18IB that omits the £50,000 accounting profit limit in TIOPA10/Part9A/S371LB(2), and the £50,000 non-trading income and £500,000 total accounting profit limits in S371LB(4) as foreign PE profits are attributed under treaty principles rather than a calculation of accounting profits. The group mismatch anti-avoidance provision in S371LC(6) is also omitted as it is not relevant because it only applies where S371LB(2) and (4) are applicable.

The detailed rules for the application of Chapter 12 can be found here