MTT41040 - Particular entities and adjustments: Permanent establishments: Allocation of covered tax expense
Where an amount of qualifying current tax expense is included in a member’s accounts in respect of the profits of a permanent establishment (PE), that amount is to be allocated to the PE, in accordance with section 177 of Finance (No.2) Act 2023.
Where an amount has been reallocated to a PE, it will be excluded from the covered tax balance of the main entity.
Adjusted profits of permanent establishment reallocated to main entity
Where profits of a PE are treated as income of the main entity under section 160 (see MTT41030), covered taxes on those profits are also allocated to the main entity.
However, the amount of covered taxes that are reallocated is restricted to:
- the reallocated profits,
multiplied by
- the highest corporate tax rate on ordinary income in the main entity’s territory.
Adjusted loss of permanent establishment reallocated to main entity
Where:
- a loss arising in the PE territory is treated as expense of the main entity under section 160 (see MTT41030), and
- there is a deferred tax asset in respect to that loss,
that deferred tax asset is ignored when determining the covered tax balance of either the main entity or the PE.