MTT41020 - Particular entities and adjustments: Permanent establishments: Underlying profits
For normal members of a group, the underlying profits are the profits determined when preparing the consolidated financial statements of the ultimate parent entity.
Different rules are required for permanent establishments (PEs) because their financial results will not necessarily be distinguished from the financial results of the main entity when preparing the consolidated financial statements.
The underlying profits of a PE are its profits as reflected in:
- the PE’s separate financial accounts, or
- if the PE does not have separate financial accounts, the underlying profits accounts (see MTT21010) of the main entity or legal main entity, after those profits are attributed between the PE and the main entity or legal main entity under section 159 of Finance (No.2) Act 2023.
If the ‘legal main entity’ and ‘main entity’ of the PE are different, then the underlying profits of a PE which does not have separate financial accounts is determined by reference to the entity which is relevant under section 159 of Finance (No.2) Act 2023 (see MTT41025)
This is set out in section 135 of Finance (No.2) Act 2023.
See MTT421025 for guidance on the attribution of profits between a PE and its main entity.
No "double counting"
The profits of a PE (as determined for MTT purposes) are not to be taken into account in determining the adjusted profits of the main entity or legal main entity, and vice versa, in order to prevent double counting.
However, see MTT41030 for guidance on when profits and losses that have been attributed to a PE may be treated as profits or an expense of the main entity, when determining the adjusted profits of the main entity.
Introduction in Finance Act 2026
Section 232ZA which impacts section 135 was introduced by FA26. This guidance page reflects the current version of the legislation. Consult FA26 for legislation applicable to prior periods if the retrospection election does not apply.