United Kingdom

Corporate - Branch income

Last reviewed - 01 July 2025

Tax rates on the profits of UK PEs of non-resident corporations are the same as for domestic corporations.

There are specific rules setting out how the PE's profits should be evaluated for UK tax purposes, which broadly seek to treat the PE as if it were an independent entity dealing at arm’s length with its related parties, including other parts of the entity of which it is a PE. The United Kingdom recognises the OECD’s Authorised OECD Approach (AOA) to the attribution of profits. The precise application of the independent entity approach, and the use of the AOA, will depend on the terms of the DTT between the United Kingdom and the other territories involved. Financing arrangements between the PE and head office must be disregarded, and deemed royalty payments may also need to be disregarded. There are special rules for banks to stop under-performing loans being allocated to the UK PE in a way that is considered unacceptable and similar potential manipulations.

As noted in thePermanent establishment (PE)' in the Corporate residence section, one of the key changes proposed as part of HMRC’s TP/PE/DPT consultation on draft legislation is amendments to Part 2, Chapter 4 CTA 2009 to give certainty that relevant OECD documents can be relied upon to interpret the 'separate enterprise principle,' including the 2010 OECD Report on the Attribution of Profits to Permanent Establishments. The attribution of profits to PEs will now be governed by rules that mirror Article 7(2) of the 2017 OECD MTC.

The UK’s definition of the separate enterprise principle has been updated so that profits attributed to a PE are those that would have been earned by a “separate and independent enterprise” engaged in similar activities under similar conditions, replacing the previous “distinct and separate enterprise” language. This change also requires that the functions, assets, and risks of both the PE and the rest of the non-UK resident company are considered, in line with the AOA.

As a result, several sections within CTA 2009 that introduced specific UK nuances will be amended or removed, such as those governing arm’s length transactions, allowable deductions, and restrictions on deductions for costs, intangible assets, and financing costs. Additionally, provisions specific to banks and financial institutions, including those related to the attribution of financial assets and profits, are also being repealed. However, the application of the separate entity principle for insurance companies remains, with relevant references updated for consistency.

As noted in the Significant developments section, the consultation will run until 7 July 2025, after which the government will analyse and publish a response to the views expressed by stakeholders. These views will feed into the drafting of the final legislation, which the government intends to include in Finance Bill 2025-26 so is likely to be effective at some point during 2026..

Tax is not generally withheld on transfers of profits from a UK PE to the head office.