United Kingdom

Corporate - Branch income

Last reviewed - 24 June 2021

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, as may deemed royalty payments need to be, and 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. However, a deduction may be given for a proportion of head office costs and a share of R&D expenditure.

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