INTM432080 - Schedule 28AA: how it works

Branches

In law, a branch is not a separate legal person from the company to which it belongs, but is part of it. Profits of the overseas branch of a UK company will be included in the total profits of that UK company. In the case of the UK branch of a non-resident company, ICTA88/S11 brings the company within the charge to Corporation Tax in respect of its trade, but limits the chargeable profits to, broadly, the income arising directly or indirectly through or from the branch or agency. See also the remarks below on the Business Profits Articles of double taxation agreements ('DTAs').

For the purposes of Schedule 28AA, transactions between a branch of one company and another related company should be looked at in the first instance as if they were transactions between the company of which the branch is a part and the other company. Thus the legislation can apply to transactions involving branches. For example:

• transactions between the United Kingdom branch of a United States company and an associated overseas company or
• the overseas branch of a United Kingdom company and an associated overseas company or
• the overseas branch of a United Kingdom company and an associated United Kingdom company

will be caught, subject (in the normal way) to the exemptions of INTM432110

Transactions between a company's head office and a branch or between different branches of the same company are not between separate persons and Schedule 28AA cannot apply. In this respect it should be noted that DTAs frequently include a 'Business Profits Article' which governs the treatment of transactions between a branch and its head office. Business Profits Articles vary from agreement to agreement, but, in general, the taxable profits of the branch will be those which it might be expected to make if it were a distinct and separate enterprise dealing with its head office at arm's length. In the case of the foreign branch of a UK resident company, the price put on transactions between the two will not affect the profits charged to UK tax, since the profits of the branch will be included in the company's total profits. Here the profits of the branch as determined in accordance with the Business Profits Article would only be relevant in determining the amount of double taxation relief available in respect of foreign tax on the profits of the branch.

For transactions between a UK company and the UK branch of an affiliate where the UK branch is within the charge to Corporation Tax, the basic rule did not apply in respect of the calculation of profits arising before 1 April 2004, but will apply for the purposes of calculating profits arising on or after 1 April 2004.