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, after those profits are attributed between the PE and the main entity under section 159 of Finance (No.2) Act 2023.

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, 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.