CT- Overseas aspects

Question 1

DTR

Answer 1

• lower of overseas tax and UK tax payable

Question 2

What is a Permanent Establishment (PE)

Answer 2

PE is a branch, office, factory in an overseas country
- company can be charged tax in UK and overseas
- UK can elect to exempt profits from an PE for UK CT.

Impact of election
- irrevocable
- can be made at any time, and takes affect from the beginning of a/p that follows on where the election was made.
- once made, it must apply to all PE
- prohibits the use of PE losses
- No UK capital allowances can be claimed on P&M used overseas.

Question 3

what are the rules for CFC?

Answer 3

CFC is controlled by UK and have diverted profits:
control is considered to be:
- ownership of more than 50% of the foreign company
- 40% of company held by UK resident

• any UK company that own s 25% of a CFC is taxed CT on their share of the CFC’s profits.

there is no CFC charge if there is no chargeable profits and the CFC:
- holds no assets or bears any risks that are managed in UK
- hold no risk under nay tax avoidance schemes
- CFC can trade if UK managements of assets and risks was to cease.

Exemptions to CFC charge (EELLT) Energetic Elephants Love Lifting Trees
- exempt period- first 12 months of becoming a CFC
- excluded territories on HMRC list
- low profits- TTP is less than 500k in a 12 month period of which less than 50k is NTP
- low profit margin- profits are less than 10% of relevant operating expenditure
Tax exemption- tax paid in overseas country is more than 75% of UK CT rate if company was UK resident.