UK profits and permanent establishments

Forthcoming change: HMRC issued a consultation on the ‘Reform of UK law in relation to transfer pricing, permanent establishment and Diverted Profits Tax (DPT)’. A summary of responses was published on 16 January 2024. In relation to permanent establishments (PEs), the government is considering whether to update the UK’s definition of PEs and the profit attribution rules in line with the UK’s double tax treaties, the 2017 version of the OECD Model Tax Convention (OECD Model) and the BEPS Multilateral Instrument. The consultation notes that, in particular, aligning the UK’s domestic legislation with the OECD Model would expand the circumstances in which a UK agency permanent establishment could be created. For more information, see News Analysis: TAMD 2023—consultation on reform of permanent establishment rules. According to the government’s Corporate Tax Roadmap 2024, published at Autumn Budget 2024, it will open a ‘second-round consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and Diverted Profits Tax’. See News Analysis: Autumn Budget 2024—Tax analysis—International.

When a non-UK resident company does business in the UK, it may be subject to UK tax.