INTM610070 - Profit Fragmentation Arrangements: The Material Provision
The Material Provision condition at paragraph 2(1)(a) Schedule 4 Finance Act 2019 requires there to be a provision made or imposed between the resident party and the overseas party by means of the arrangements.
“Arrangement” is defined in the Profit Fragmentation legislation to include:
- any agreement, scheme, transaction or understanding (whether or not legally enforceable), and
- a series of arrangements or a part of an arrangement.
The definition of “arrangement” is wide and covers arrangements that arise from a legal agreement between parties through to arrangements that rely only on an oral understanding.
The second bullet point means that an “arrangement” includes a series of arrangements or transactions, making it possible to consider the overall transactions or arrangements as a whole when considering the purpose of an arrangement.
Similarly, an “arrangement” can be a part of an arrangement that exists within a wider whole and the focus can be on that narrower part of the overall arrangement when considering its purpose.
If the resident party is a member of a partnership the concept of a provision made or imposed is extended. This means that where a provision is made or imposed between a partnership of which the resident party is a member and the overseas party it is treated as a provision made or imposed between the resident party and the overseas party.
The definition of “arrangement” can include partnership agreements. More details on the application of the Profit Fragmentation legislation to partnerships can be found at INTM610040.
The term “provision” is explained in more detail in the International Manual at INTM412050.
Example 5 – Provisions for Partnerships
A is a UK-resident individual who is carrying on a trade in partnership with a number of other individuals as P Associates. P Associates contracts with an overseas company O Ltd. for O Ltd. to provide services to P Associates in exchange for a fee. For the purpose of the Profit Fragmentation legislation the provision made between P Associates and O Ltd is treated as a provision made between A and O Ltd.