Chapter 33 Overseas matters for companies Flashcards
33.1 Introduction
UK resident companies are taxable on their worldwide income. Non resident companies will be chargeable to UK CT if:
• Income and gains arising from carrying on a trade in the UK through a permanent establishment
• Income arising from carrying on a trade of dealing in or developing UK land
• Gains arising after 5 April 2019 on disposals of interests in UK land and buildings
33.2 Company residence
A company incorporated in the UK will be regarded as UK resident. If a company that is not incorporated in the UK will still be considered UK resident if it is centrally managed and controlled in the UK. HMRC look at the highest level of control. Where the board of directors’ meet is important for seeing if the company is managed in the UK. HMRC outline the following approach:
• HMRC will try to ascertain whether the directors actually exercise central management and control
• If the directors do not exercise central management and control, HMRC will seek to establish where it is exercised
• If the directors do not exercise central management and control, HMRC will seek to establish who does and where
33.3 Double tax relief
Where the company is UK resident but pays overseas tax DTR comes into effect. Relief is restricted to the amount of UK tax arising on the income and the amount paid on foreign tax.
33.6 Exemption for dividends
Foreign dividends received by a UK company are not normally charged to UK CT.
33.7 Overseas permanent establishment or subsidiary abroad
A UK resident company intending to conduct business abroad must choose between a subsidiary company and a permanent establishment. A foreign PE can take the form of a branch, office, factory or workshop located abroad. It is just a division of the UK resident company, not a separate legal entity.
Foreign subsidiary – separate legal entity, profits not liable to UK tax if it is non-resident subject to anti-avoidance rules. When profits are remitted to the parent company in the UK in the form of dividends, they are usually exempt from CT. No tax relief will be obtained against the UK parent’s profits for any overseas loss. The foreign subsidiary still counts as a 51% subsidiary for threshold purposes of quarterly installments.
Foreign PE – the profits of a foreign PE are treated as part of the profits of the UK company. If however the operations of the PE amount to a separate trade carried wholly outside of the UK, the profits are assessed as foreign income and DTR is available.
UK capital allowances will be available for expenditure on plant and the losses are normally netted off against the UK company’s trading income. There is an optional exemption from CT for profits arising from foreign PEs of a UK company. If profits are exempt under the provisions, losses will be excluded to the extent that they arise from foreign PEs. Profits from dealing in or developing UK land and (from 6 April 2020) profits or losses of a company’s UK property business are always taxable and may not be included in a PE exemption.
