INTM610010 - Introduction

Section 16 Finance Act 2019 introduces the Profit Fragmentation legislation which is included in Schedule 4 Finance Act 2019. The legislation applies to transfers of value that take place on or after 1 April 2019 for corporation tax and 6 April 2019 for income tax.

The Profit Fragmentation legislation tackles tax avoidance arrangements that involve the fragmentation of UK business profits and their diversion to overseas entities. The legislation ensures that the amount of profit that should be taxable in the UK is fully taxed in the UK.

The legislation is narrowly-targeted anti-avoidance legislation and will not typically apply to straightforward commercial transactions. The arrangements affected by this legislation typically involve a UK business either:

• diverting business receipts to an offshore entity (typically based in a tax haven), when that entity does not have the substance to earn those profits; or
• paying fees and expenses to an offshore entity that are much higher than is justified by the work done by that entity.

The legislation will apply if the conditions are met for arrangements to be Profit Fragmentation Arrangements and neither of the Exception Conditions apply.

The guidance to this legislation is laid out as follows:

• The Parties involved in Profit Fragmentation Arrangements are described further at INTM610040 onwards.
• The definition of Profit Fragmentation Arrangements is described further at INTM610060 onwards.
• The Enjoyment Conditions are described further at INTM610110 onwards.
• The Exception Conditions are described further at INTM610140 onwards.
• The Adjustments to be made are described further at INTM610200 onwards.
• The Double Taxation relief available where adjustments have been made is described further at INTM610240 onwards.
• The Interaction between the Profit Fragmentation legislation and other legislation is described further at INTM610250 onwards.
• The process for making adjustments is described further at INTM610280 onwards.