Taxation of UK Branches of Foreign Companies
Following the publication of earlier versions of draft legislation on this topic on the 25 July 2002 and at PBR on 27 November 2002 a final draft of the legislation and explanatory notes has been published today. This final draft includes a new Schedule, not previously published, which incorporates into UK domestic law the principles contained in the OECD Commentary on Article 7 of the Model Tax Convention on Income and on Capital together with the relevant principles in the publication "Transfer Pricing and Multinational Enterprises, Three Taxation Issues, The taxation of Multinational Banking Enterprises, Chapter III Banking and Financial Enterprises operating through Branches".
The new legislation, to be introduced in the 2003 Finance Bill, will apply to foreign companies' accounting periods starting on or after 1 January 2003. It attributes capital to a UK branch for tax purposes based on the capital the branch would need if it were an independent, free-standing company operating in the UK, in the same or similar conditions and circumstances as the branch.
The change also modernises the terminology used in the current legislation by referring to "permanent establishments" (which is the internationally-recognised term, and the one used in the UK's double taxation agreements) rather than "branches".
In addition to publishing a final draft of the legislation, updated guidance has also been published. The revised version of the guidance provides some further examples, and detail, on certain issues.
An updated and final Regulatory Impact Assessment will be published before Finance Bill 2003.
All these documents are in PDF format. To view a PDF document you must have Adobe Acrobat Reader installed on your computer. If you require this material in large print or Braille please contact your local HMRC office, or enquiry centre; for paper material contact your ordering service. To save a document to your computer, right click on the link and choose the save option.
- Complete Clauses and Schedules (158K)
- Explanatory Notes on Clauses 1-9 (474K)
- New Schedule A1 (36K)
- Explanatory note on Schedule A1 (60K)
- The draft Non-Resident Insurance Companies Regulations 2003 and Explanatory Note (92K) - (see the draft S11(AA)(5) in Clause 2)
- Guidance on Capital Attribution to Banks (412K)
The earlier versions of the draft legislation may be found at:
- Consultation Register With Effect From October 2001, Taxation of UK Branches of Foreign Companies
- Pre Budget Report 2002, Draft Legislation Taxation of UK branches of Foreign Companies
