As explained at
GIM10115, the charging provision is in
domestic legislation and is subject to (meaning its scope may be
limited by) an applicable double tax treaty, which is generally
modelled on the OECD Model Convention.
The relevant Articles in the Model are Article 5, which
defines ‘permanent establishment’, (
GIM10121) and Article 7, the Business
Profits Article (but see
GIM10235 regarding interaction with
other Articles). Article 7(1) allows tax to be charged on the
profits of a UK permanent establishment, “but only so much of
them as is attributable to that permanent establishment”.
Article 7(2) then gives the rules for attribution, providing that
the permanent establishment will have attributed to it “the
profits which it might be expected to make if it were a distinct
and separate enterprise engaged in the same or similar activities
under the same or similar conditions and dealing wholly
independently with the enterprise of which it is a permanent
establishment”. Finally, Article 7(3) provides that in
determining the profits to be attributed “there shall be
allowed as deductions expenses which are incurred for the purpose
of the permanent establishment”, whether the expense is
incurred in the State in which the permanent establishment is
situated or elsewhere.
For accounting periods beginning on or after 1 January
2003
