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HMRC internal manual

International Manual

From
HM Revenue & Customs
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Double Taxation applications & claims: permanent establishment and special relationship: How you know the PE condition is satisfied

If the information you have indicates the possible existence of a Permanent Establishment you should consult the terms of the DTA and consider whether its existence disallows relief. The text of the DTA’s differ for this condition for relief and so it’s necessary to consult the specific DTA when you are in doubt or believe that no relief is available because of a PE. You will find that in the specific Articles for each income source there may be a reference to PE in the following formats

  • the majority of the DTAs you will deal with (the more modern ones) provide that no relief is available if the underlying asset which the income on the claim arises from is “effectively connected with” the PE or with a trade or business carried on through it. You can assume that the underlying asset is “effectively connected” if the income arising from it is part of the profits of a business carried on through the PE and attributable to it
  • some DTAs provide that no relief is available where the claimant has a permanent establishment in the UK and the income on the claim “is attributable to that PE”. This means that relief would be refused if the income arises from an activity of the PE or from contracts negotiated by it on behalf of the claimant
  • in the earlier DTAs no relief is available to a resident who “is engaged in trade or business through a permanent establishment in the UK”. This would mean that if there was a PE in the UK no relief would be available regardless of whether the income on the claim form is connected to the PE. Generally you can assume that if there is a UK branch the claimant is engaged in trade or business through that branch. The claimant may disprove this by producing appropriate evidence. If at any time the claimant stops being involved in trade or business through that branch then relief will be available after that date. Similarly relief will cease to be available from the date upon which trade or business through that branch commences.

Trading through a PE can be defined as any of the following

  • the sale of goods - this is the most common definition
  • the hiring of property e.g. musical scores (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • an interest in property or land - if you think this is the case refer the file to Technical Advice Group.

However, the final decision of whether there is a Permanent Establishment in the UK has to be made by the relevant HMRC office for the payer of the income.