INTM489620 - Diverted Profits Tax: application of Diverted Profits Tax: legislation – Finance Act 2015 – core provisions: section 81 - involvement of entities or transactions lacking economic substance - extension to foreign companies with a UK permanent establishment

The second situation where a DPT charge may arise is set out in section 81. This is an extension to the first situation, applying where a non-UK resident company (“the foreign company”) trades through a UK permanent establishment (“UKPE”). The section 80 rules are extended and adapted by section 81 so that they can work in the same way as for UK resident companies.

For this purpose, UKPE is treated as a separate UK resident company under the control of the foreign company and as having entered into any transaction or series of transactions entered into by the foreign company, to the extent that they are relevant to the computation of UKPE’s chargeable profits for corporation tax.

In order for DPT to apply in this situation the following basic conditions must be met:

• Chapter 4 of Part 2 CTA 2009 applies to determine the chargeable profits of the foreign company, and
• if the UKPE were a distinct and separate person under the same control as the foreign company, section 80 would have applied to the UKPE

Whether the material provision results in an effective tax mismatch outcome (INTM489740) and whether the insufficient economic substance condition is met (INTM489765) are considered based on the treatment of the UKPE as a separate UK resident company as described above.

The section 80 exemptions for excepted loan relationship outcomes and SMEs also apply to section 81.