Budget 2018: the chancellor has announced that the UK will be adopting OECD recommended changes to the definition of permanent establishment.

With effect from 1 January 2019:

  • The exempt activities rules at s1143 CTA 2010 which include preparatory or auxiliary activities such as storing the company’s own products, purchasing goods, or collecting information for the non-resident company, will not apply when the business activity has been artificially fragmented to avoid creating a Permanent establishment.
  • In such situations the permanent establishment conditions will be met, giving taxing rights over the profits of that permanent establishment to the jurisdiction where it is located.
  • Where an accounting period straddles 1 January 2019 the provision applies to the part of the period falling after that date.
  • The change has already been adopted in UK tax treaties; this measure will give effect to that change under UK domestic law.

Useful links:

Budget 2018 live highlights

Budget 2018 summary

External link

HMRC: Policy paper: Corporation Tax: change to the definition of permanent establishment