Overseas aspects of CT Flashcards
A company is a UK resident if
It is incorporated in the UK or controlled and managed from the UK
Non UK companies are only taxed if
They have a permanent establishment in the UK. They are taxed at the main rate
Transactions between the PE and Non res company are treated
as taking place at arms length prices
Profits of the PE are taxed at
the main rate
Define a PE
A permanent establishmernt is a fixed place of business through which business of the enterprise is wholly or partly carried on for a minimum of 12 months. Doe snot include storage of goods or maintenance of stock
Where a non res company ceases trade in the UK
There is a chargeable gain on all assets and they are treated as disposed abd reaquired at market value immediatly before cessation. The same happens if an asset is exported.
Overseas branch election
Takes effect from the start of the accounting period after the election. The election is irrevocable
When is it not beneficial to make the election?
If the overseas PE’s are loss making as then there is no relief for the losses in the UK
If the overseas tax rates are quite high, the UK tax charge after DTR is minimal
When an overseas branch becomes profitable and the overseas tax rate is lower than that of the UK
Consideration should be given into whether msking the election to exempt branch profits and losses or converting PE into an overseas sub
DTR methods are
Exemption - Under treaty with UK income is only taxable in one country
Credit relief - Taxed in both countries but there is a credit given in the UK
Credit relief
DTR is restricted to the lower of:
Foreign tax suffered
UK corp tax at the companies average rate on the overseas income. DTR is calculated seperatly for each source of income
Allocation of losses and QCD’s
Able to offset in the way that benefits the company the most.
Set off against UK income first and then against foreign tax that suffers the lowest rate of tax
Group and consortium relief applies to
Companies resident in the UK and overseas companies with a UK PE
If is illegal for a UK resident company to
Cause or permit a non UK resident company over which it has control to issue any shares or loan stock unless intragroup or full consideration is given. If a transaction is over 100m HMRC must be notified within 6 months unless the transaction is carried out as part of the trade.
the conversion of a PE into an overseas sub
is a disposal of assets and therefore creates a chargeable event.
A chargeable gain can be disposed when:
The trade is transferred to an overseas sub with ALL of the assets used for that trade except cash
The consideration for the transfer is wholly or partly securities (shares or shares and loan stock)
The transferring company owns at least 25% of the non res company
A claim for relief is made
When is there full / no postponement?
Full - Fully securities
None - is part of the consideration is cash
The postponement is indefinite unless
The trasferor company disposes of the securities recieved on the transfer
or
the non UK resident companydisposes of any of the assets within 6 years of the gain
UK PE’s of non resident companies can surrender UK losses to UK group members IF
those losses are not available to use against profits in the over seas company
Transfer pricing
Anti avoidance legislation exists to prevnt companies under common control structuring their transactions to shift profits or losses from one company to another in order to reduce the tax burden on the group.
Has to be accounted for as if happened at arms length.
The other company can only have the corressponding charge if liable to UK CT
The transfer pricing rules apply to transactions between two persons if either:
One person directly or indirectly participates in the management, control or capital of the other
OR
A third party directly or indirectly participates in the management, control or capital of both.
Who is exempt from the trasfer pricing rules?
SME’s. A company with less than 250 employees and either turnover of less than 50m Euros or a BS total less than 43m Euros
Unless one of the parties is a resident in a non qualifying territory (one without double treaty with UK)
Thin capitalisation
Non commercial loans designed to move profts via interest payments.
Same rules as Transfer pricing. If a commercial lender wouldn’t have leant the money then the entire interest amount is disallowed
Advanced pricing agreements
An agreement with HMRC to ensure that it’s transfer pricing agreements are acceptable.
A company is controlled by persons resident in the UK if
A UK person or persons controls the company (more than 50%)
It is at least 40% held by UK resident and at least 40% but no more than 55% owned by non UK resident
What is a CFC?
Controlled foreign company which is resident outside the UK and is controlled by residents in the UK
Where a CFC has chargeable profits and the CFC is not covered by one of the exemptions
the profits are chargeable tot he UK corporate shareholders.
Exceptions: Profits do not need to be apportioned if:
Exempt period exemption - a 12 month exemption applies when a CFC first comes under the control of UK residents
Tax exemption - The local tax paid is at least 75% of the tax the CFC would have paid in the UK
Excluded territories - CFC is resident in excluded territory
Low profits - Either profits are less than £50,000 or profits not more than £500,000 of which no more than £50,000 is non trading profits
Low profit margin - Accounting profits are no more than 10% of expenditure.
CFC chargeable profits
The income profits (not gains) that have been diverted from the UK
No profits become chargeable if any of the following conditions are met
The CFC’s profits are not derived from tax planning schemes
None of the companies assets are managed from the UK in the accounting period
The CFC is not reliant on UK management
CFC charges
Profits are apportioned to the UK resident companies that are entitled to at least 25% of profits. CT is due at the main rate of 25%. and a deduction for DTR is available.
