Corporation tax is charged on profits of companies for any financial year for which an Act so provides.

In this Part “profits” means income and chargeable gains, except in so far as the context otherwise requires.

In this Act “the charge to corporation tax on income” means the charge under subsection (1) so far as relating to income.

The charge to corporation tax on income has effect in accordance with the provisions of the Corporation Tax Acts that deal with its application.

Subsection (1) does not apply to income accruing to a company in a fiduciary or representative capacity.

A UK resident company is chargeable to corporation tax on all its profits wherever arising F4(but see Chapter 3A for an exemption from charge in respect of profits of foreign permanent establishments).

A non-UK resident company which carries on a trade of dealing in or developing UK land is chargeable to corporation tax on all its profits wherever arising that are profits of that trade.

A non-UK resident company which carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom is chargeable to corporation tax on all its profits wherever arising that are chargeable profits as defined in section 19 (profits attributable to its permanent establishment in the United Kingdom).

Subsections (1)F7, (2A) and (3) are subject to any exceptions provided for by the Corporation Tax Acts.

Subsection (3) applies if a company has entered into an arrangement the main purpose or one of the main purposes of which is to obtain a relevant tax advantage for the company.

In subsection (1) the reference to obtaining a relevant tax advantage includes obtaining a relevant tax advantage by virtue of any provisions of double taxation arrangements, but only in a case where the relevant tax advantage is contrary to the object and purpose of the provisions of the double taxation arrangements (and subsection (3) has effect accordingly, regardless of section 6(1) of TIOPA 2010).

The relevant tax advantage is to be counteracted by means of adjustments.

For this purpose adjustments may be made (whether by an officer of Revenue and Customs or by the company) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.

In this section “relevant tax advantage” means a tax advantage in relation to corporation tax to which the company is chargeable (or would without the tax advantage be chargeable) by virtue of section 5(2A).

In this section—

• “arrangement” (except in the phrase “double taxation arrangements”) includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;

• “double taxation arrangements” means arrangements which have effect under section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside the United Kingdom);

• “tax advantage” has the meaning given by section 1139 of CTA 2010.

In this section—

• “disposal” is to be interpreted in accordance with section 356OQ of CTA 2010;

• “UK land” means land in the United Kingdom.

A company is not chargeable to corporation tax on profits which accrue to it in a fiduciary or representative capacity except as respects its own beneficial interest (if any) in the profits.

The exception under subsection (1) from chargeability does not apply to profits arising in the winding up of the company.

Corporation tax for a financial year is charged on profits arising in the year.

Corporation tax is calculated and chargeable, and assessments to corporation tax are made, by reference to accounting periods.

Corporation tax which is assessed and charged for an accounting period of a company is assessed and charged on the full amount of profits arising in the accounting period.

Subsection (3) is subject to any contrary provision in the Corporation Tax Acts.

If a company's accounting period falls within more than one financial year, the amount of the profits arising in the accounting period that is chargeable to corporation tax must be apportioned between the financial years in which the accounting period falls.

If a F10... company makes an election under this section, exemption adjustments are to be made at the appropriate stages in calculating the taxable total profits of the company for each relevant accounting period.

For that purpose “exemption adjustments” means any such adjustments as are appropriate to secure that there are left out of account any profits and losses taken into account in arriving at the foreign permanent establishments amount in relation to any relevant accounting period.

But profits and losses are not to be left out of account as mentioned in subsection (2) so far as they are, or would if the company were non-UK resident be, profits of the company's trade of dealing in or developing UK land (as defined in section 5B).

In this Chapter “relevant accounting period”, in relation to a company by which an election is made under this section, means an accounting period of the company to which the election applies (as to which see section 18F).

In this Chapter “relevant foreign territory”, in relation to a company, means a territory outside the United Kingdom in which the company carries on, or has carried on, business through a permanent establishment.

Subsection (9) applies if the amount of any credit to be allowed under TIOPA 2010 in relation to a company in the case of a full treaty territory does not depend on the profits taken to be attributable to the permanent establishment of the company in the territory because tax under the law of the territory is charged, pursuant to the double taxation arrangements having effect in relation to the territory, otherwise than by reference to such profits (as an alternative to a charge by reference to such profits).

The reference in subsection (6)(a) to profits which would be taken to be attributable to the permanent establishment of the company in the territory is to the profits that would be so taken if tax under the law of the territory were charged by reference to such profits; and subsection (7)(a) is to be construed accordingly.

For the purposes of subsections (6) and (7) if double taxation arrangements having effect in relation to a relevant foreign territory do not include provision for the credit to be allowed against tax to be computed by reference to the same profits as those by reference to which the tax was computed under the law of the relevant foreign territory, they are to be assumed to do so.

This section is subject to the following provisions of this Chapter.

The exemption adjustments required to be made by section 18A(1) include, in the case of any gains or losses on the disposal or realisation of assets which are relevant in the calculation of the taxable total profits of a company for a relevant accounting period, adjustments to remove the effect of any gains or losses relating to the assets taken into account in computing the foreign permanent establishments amount in relation to any relevant accounting period (so that, in appropriate cases, a gain may be increased to reflect a loss so taken into account or a loss increased to reflect a gain so taken into account).

The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any gains in respect of immoveable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

The references in section 18A(6) to profits which would be taken, in the case of a company in relation to which an election under section 18A has effect, to be attributable to the permanent establishment of the company in a territory (including as extended by subsection (2)) do not include any gains which would be taken to be so attributable for the purposes of ascertaining credit to be allowed in respect of tax payable under the law of the territory before the election has effect; and the references to losses in section 18A(7) are to be construed accordingly.

Any allowance under Part 2 of CAA 2001 which, but for section 18A and for section 15(2A)(b) of CAA 2001, could be claimed under section 3(1) of that Act in respect of assets provided for the purposes of a permanent establishment in a territory outside the United Kingdom through which business is or has been carried on by a company in relation to which an election under section 18A has effect (and any charge in connection with any such allowance) is to be made automatically and reflected in any calculation for any relevant accounting period of the company of the profits or losses attributable to business carried on by the company through such a permanent establishment.

In the application of section 13 of CAA 2001 by virtue of subsection (1) on the taking effect of the election under section 18A, references to “market value” have effect as references to “transition value” within the meaning of section 62A of that Act in relation to any plant or machinery in the case of which that is the disposal value under section 61 of that Act.

In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account any profits or losses arising from a plant or machinery lease under which the company is a lessor if an allowance under CAA 2001 has been made to the company or a connected company in respect of expenditure on the provision of any plant or machinery subject to the lease (otherwise than in accordance with this section).

Section 70K of that Act (meaning of “plant or machinery lease” and “lessor”) applies for the purposes of subsection (3).

In determining for the purposes of section 18A the amount of any credit to be allowed under TIOPA 2010 in respect of tax under the law of a relevant foreign territory in the case of a company, it is to be assumed that the company made any claim or election (other than a claim for allowances under Part 2 of CAA 2001) which would reduce any relevant profits amount, or increase the relevant losses amount, by any means, and within any time limit, applicable to it.

In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company, there are to be left out of account any profits or losses of any part of the company's business which consists of the making of investments.

Subsection (1) does not apply to profits or losses arising from assets so far as the assets are effectively connected with any part of the permanent establishment through which a trade or overseas property business of the company is carried on in the territory.

In subsection (2) “effectively connected” is to be given the same meaning as it would be given for the purposes of the OECD model were subsection (2) contained in the OECD model.

In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company there are to be left out of account profits or losses referable to any transaction between a person who is UK resident and a permanent establishment in a territory outside the United Kingdom through which the company carries on, or has carried on, business (“the foreign territory in question”) if the condition in subsection (2) is met.

That condition is that the UK resident would be obliged under Part 15 of ITA 2007 to deduct income tax that is not repayable from payments in respect of the transaction if the payments were made to a company resident in the foreign territory in question (taking account of any double taxation arrangements having effect in relation to the foreign territory in question).

But subsection (1) does not apply if the company is a bank unless the transaction forms part of arrangements the main purpose, or one of the main purposes, of which is the avoidance of an obligation under Part 15 of ITA 2007 to deduct income tax from any payments.

Section 1120 of CTA 2010 (meaning of “bank”) applies for the purposes of subsection (3).

Any relief which would be given under Chapter 2 or 3 of Part 12 is to be taken into account in determining any relevant profits amount or relevant losses amount in the case of a company under section 18A(6) or (7) in relation to a relevant foreign territory in so far as it is linked to the business carried on by the company through a permanent establishment in the territory.

The extent to which any such relief is so linked is to be determined on a just and reasonable basis having regard to the extent to which the work of the employees concerned contributes to the purposes of the business so carried on.

“The relevant day”, in relation to an election made by a non-UK resident company, means the day on which the company becomes UK resident.

Subsection (4) applies if an accounting period of the company (“the straddling period”) begins before, and ends on or after, the relevant day.

Where for those purposes it is necessary to apportion the profits and losses for the straddling period to different parts of the period, that apportionment is to be made on a just and reasonable basis.

F15An election can be revoked by the company which made it at any time before the relevant day.

An election made by a UK resident company is revoked if the company ceases to be UK resident.

An election made by a non-UK resident company is revoked if, having become UK resident, the company ceases to be UK resident.

The diverted profits are to be left out of the adjusted relevant profits amount.

For the purposes of this Chapter “adjusted”, in relation to a relevant profits amount, is what the relevant profits amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for corporation tax purposes.

In section 18G(1)(b) “diverted profits” means so much of company X's total profits of period X as pass through the diverted profits gateway.

Subsection (3)(a) does not require it to be assumed that there is any change in the place or places at which company X carries on its activities.

Section 371BB of TIOPA 2010 and the other provisions referred to in it are also to be applied subject to sections 18HA to 18HE below.

Chapter 4 of Part 9A of TIOPA 2010 (the CFC charge gateway: profits attributable to UK activities) applies for the purposes of section 18H(2) with the following modifications.

Section 371VF(3) of TIOPA 2010 (definition of “related” person) is to be applied as relevant with the omission of paragraphs (b) and (c).

Chapter 9 of Part 9A of TIOPA 2010 (exemptions for profits from qualifying loan relationships) applies for the purposes of section 18H(2) with the following modifications.

In section 371IA(2) and (11) the reference to a chargeable company is to be read as a reference to company X (as is the reference in section 371CB(8)); and references elsewhere in Chapter 9 to company C are to be read as references to company X.

In section 371IA(9)(a) the words “or Chapter 8 (solo consolidation)” are to be omitted.

Sections 371IB to 371IE are to be omitted.

Section 371IH(11)(a) is to be read ignoring the modification in section 18HC(b) above.

In section 371IJ references to the relevant corporation tax accounting period are to be read as references to period X and subsection (6) is to be omitted.

The exemptions referred to in section 18G(1)(c) are the exemptions set out in Chapters 11 to 14 of Part 9A of TIOPA 2010 (controlled foreign companies: exemptions from the CFC charge).

Chapters 11 to 14 of Part 9A of TIOPA 2010 are also to be applied subject to sections 18IA to 18ID below.

Chapter 11 of Part 9A of TIOPA 2010 (controlled foreign companies: the excluded territories exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

Sections 371KB(1)(b)(iii) and 371KH are to be omitted.

Section 371KC is to be omitted and the assumption set out in section 18I(3)(b) above in relation to the CFC's residence is to be applied instead; and references to “the CFC's territory” are to be read accordingly.

Section 371KD(3) is to be omitted and references to a CFC's accounting profits for an accounting period are to be read as references to the adjusted relevant profits amount.

Section 371KE(2)(b) is to be omitted.

Section 371KF is to be omitted.

In section 371KG(3) the reference to the CFC's equity or debt is to be read as a reference to company X's equity or debt (ignoring the assumption in section 18I(3)(a) above).

Section 371KI(2) and (3) is to be omitted.

Chapter 13 of Part 9A of TIOPA 2010 (controlled foreign companies: the low profit margin exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

Chapter 14 of Part 9A of TIOPA 2010 (controlled foreign companies: the tax exemption) applies for the purposes of section 18G(1)(c) with the following modifications.

References to the CFC's local chargeable profits arising in the accounting period are to be read as references to the adjusted relevant profits amount and, accordingly, sections 371NB(4) and 371NC(2) to (4) are to be omitted.

For the purposes of step 3 in section 371NB(1) the amount of the corresponding UK tax for the accounting period is to be determined in accordance with subsection (5) below; and section 371NE is to be omitted accordingly.

“The corresponding UK tax” is the amount of corporation tax which would be payable in respect of the adjusted relevant profits amount if it were subject in full to corporation tax, ignoring any credit which would be allowed against it under section 18(3) of TIOPA 2010 and assuming, where there is more than one rate of corporation tax applicable to period X, that it were chargeable at the average rate over period X.

The following sections make provision about a company in relation to which an election under section 18A has effect if there is a total opening negative amount in the case of the company at the beginning of the company's first relevant accounting period.

To determine for the purposes of this Chapter whether there is a total opening negative amount at the beginning of the company's first relevant accounting period, take the following steps.

• Step 1 Take the adjusted foreign permanent establishments amount in relation to the earliest affected prior accounting period in relation to which that amount is negative.

• Step 2 Add to the amount arrived at under step 1 the adjusted foreign permanent establishments amount in relation to the next affected prior accounting period (but not so as to cause the result to exceed nil).

• Step 3 Add to the amount arrived at under step 2 the adjusted foreign permanent establishments amount in relation to each remaining affected prior accounting period, starting with the earliest (but not so as to cause the result to exceed nil). If after the application of the preceding steps there is a negative amount for the last affected prior accounting period there is a total opening negative amount at the beginning of the company's first relevant accounting period of an amount equal to that negative amount.

For the purposes of subsection (2) the “adjusted” foreign permanent establishments amount is what the foreign permanent establishments amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for the purposes of corporation tax.

At the end of each relevant accounting period of the company (starting with the first) the total opening negative amount is to be reduced (or further reduced) by the amount of any aggregate relevant profits amount of the company for the accounting period (but not to below nil).

In any relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) does not apply in relation to the aggregate relevant profits amount of the company for the accounting period.

But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) is disapplied by subsection (2) only in relation to so much of the aggregate relevant profits amount of the company for the accounting period as is equal to the total opening negative amount of the company at the beginning of the accounting period.

The company may, in its company tax return for that relevant accounting period, specify to which part of the aggregate relevant profits amount of the company for the accounting period section 18A(1) is to apply by virtue of subsection (3).

In this Chapter “aggregate relevant profits amount”, in relation to an accounting period, means the aggregate of the relevant profits amount in the case of each relevant foreign territory in relation to which there is a relevant profits amount for the accounting period.

This section is subject to section 18L.

If a streaming election has effect in relation to the company sections 18M and 18N apply (instead of section 18K).

Subject to subsection (4), a streaming election is irrevocable.

A streaming election can be revoked at any time before the first relevant accounting period of the company.

A streaming election does not have effect unless the company, in the company tax return for the first relevant accounting period of the company, specifies how much of the amount eligible to be streamed to each streamed territory is to constitute for the purposes of sections 18M and 18N the streamed opening negative amount at the beginning of that relevant accounting period.

For the purposes of subsection (5) the amount eligible to be streamed to a territory by the company is the amount that would be the total opening negative amount of the company at the beginning of the first relevant accounting period of the company if at all material times the territory were the only relevant foreign territory in relation to the company.

At the end of each relevant accounting period of the company (starting with the first) the streamed opening negative amount in relation to a territory is to be reduced (or further reduced) by the amount of any relevant profits amount of the company for the territory for the accounting period (but not to below nil).

In any relevant accounting period of the company for which there is a reduction under subsection (1) in relation to a territory, section 18A(1) does not apply in relation to the relevant profits amount of the company for the territory for the accounting period.

But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1) in relation to a territory, section 18A(1) is disapplied by subsection (2) only in relation to so much of the relevant profits amount of the company for the territory for the accounting period as is equal to the streamed opening negative amount in relation to the territory at the beginning of the accounting period.

The company may, in its company tax return for that relevant accounting period, specify to which part of the relevant profits amount of the company for the territory for the accounting period section 18A(1) is to apply by virtue of subsection (3).

At the end of each relevant accounting period of the company (starting with the first) the residual opening negative amount is to be reduced (or further reduced) by the amount of any residual aggregate relevant profits amount of the company for the accounting period (but not to below nil).

In any relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) does not apply in relation to the residual aggregate relevant profits amount of the company for the accounting period.

But in the case of the last relevant accounting period of the company for which there is a reduction under subsection (1), section 18A(1) is disapplied by subsection (4) only in relation to so much of the residual aggregate relevant profits amount of the company for the accounting period as is equal to the residual opening negative amount of the company at the beginning of the accounting period.

The company may, in its company tax return for that relevant accounting period, specify to which of the amounts forming part of the residual aggregate relevant profits amount of the company for the accounting period section 18A(1) is to apply by virtue of subsection (4).

Where for the purposes of this section it is necessary to apportion the profits and losses for any accounting period to different parts of that period, that apportionment is to be made on a just and reasonable basis.

Any amount included in a transferred total opening negative amount is to be disregarded in the application of sections 18J to 18N in the case of the transferor after the transfer day.

In this section “the transfer day” means the day on which the transfer of the business takes place.

If a company is a small company at any time during a relevant accounting period, there is for that relevant accounting period no relevant profits amount or relevant losses amount for the purposes of this Chapter in relation to any relevant foreign territory that is not a full treaty territory.

If a company is a close company at any time during a relevant accounting period, so much of the profits of the company for the relevant accounting period as derives from gains which are chargeable gains for the purposes of corporation tax is not to be regarded as forming part of a relevant profits amount or relevant losses amount of the company for the purposes of this Chapter.

So much of the profits or losses of a company as consists of profits or losses arising from basic life assurance and general annuity business F19... is not to be regarded as forming part of a relevant profits amount or relevant losses amount of the company for the purposes of this Chapter.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Any election under section 107(4) of FA 2000 (general insurance: adjustment for technical provision) is to be ignored for the purposes of this Chapter.

“Relevant non-discrimination provision” means a provision to the effect that the taxation on a permanent establishment of an enterprise of a state which is party to the arrangements (a “contracting state”) is not to be less favourably levied in any other contracting state than the taxation levied on enterprises of that other contracting state carrying on the same activities.

This section applies if a non-UK resident company carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.

But the company's “chargeable profits” do not include profits of a trade of dealing in or developing UK land (and accordingly such profits are not attributable to any permanent establishment of the company).

Sections 21 to 32 apply for the purpose of determining the amount of profits of a non-UK resident company that are attributable to a permanent establishment of the company in the United Kingdom.

Sections 21 to 28 contain provision about the separate enterprise principle.

See also F23section 1152 of CTA 2010 (investment managers: disregard of certain chargeable profits) , which provides for profits of certain investment transactions to be disregarded in determining the amount of profits attributable to a permanent establishment.

In sections 22 to 28 the principle in subsection (1) (read with subsection (2)) is called “the separate enterprise principle”.

This section applies if the non-UK resident company provides the permanent establishment with goods or services.

If the goods or services are of a kind that the company supplies, in the ordinary course of its business, to third parties dealing with it at arm's length, the matter is dealt with as a transaction to which the separate enterprise principle applies.

If not, the matter is dealt with as an expense incurred by the non-UK resident company for the purposes of the permanent establishment (see section 29).

This section makes provision in a case where the non-UK resident company mentioned in subsection (1) of section 21 is an insurance company.

The assets which the permanent establishment is treated as holding in accordance with the principle in that subsection may include a proportion of assets held by the company.

Nothing in subsection (2) or (3) is to be read as preventing the application of similar principles to those provided for by that subsection in a case where the non-UK resident company mentioned in section 21(1) is not an insurance company.

The Commissioners for Her Majesty's Revenue and Customs may by regulations make other provision about the application of section 21(1) in a case where the non-UK resident company mentioned there is an insurance company.

The regulations may, in particular, make provision in place of section 21(2)(b) as to the basis on which, in the case of an insurance company, capital is to be attributed to a permanent establishment in the United Kingdom.

Sections 26 to 28 contain provision in relation to the application of the separate enterprise principle if the non-UK resident company is a bank.

Nothing in sections 26 to 28 is to be read as preventing similar principles to those provided for in those sections from applying when the separate enterprise principle is applied to a non-UK resident company that is not a bank.

In this section and those sections “bank” has the meaning given by F25section 1120 of CTA 2010 .

In accordance with the separate enterprise principle, the transfer is recognised only if it would have taken place between independent enterprises.

The transfer is not recognised if it cannot reasonably be considered that it is carried out for valid commercial reasons.

For this purpose the obtaining of a tax advantage is not a valid commercial reason.

In accordance with the separate enterprise principle, the loan or other financial asset, and profits arising from it, are attributed to the permanent establishment so far as they can reasonably be regarded as having been generated by the activities of the permanent establishment.

A deduction is allowed for any allowable expenses incurred for the purposes of the permanent establishment.

Expenses incurred for the purposes of the permanent establishment include executive and general administrative expenses so incurred, whether in the United Kingdom or elsewhere.

It does not matter whether the expenses are incurred by, or reimbursed by, the permanent establishment.

The amount of expenses to be taken into account under subsection (1) is the actual cost to the non-UK resident company.

“Allowable expenses” means expenses of a kind in respect of which a deduction would be allowed for corporation tax purposes if incurred by a UK resident company.

No deduction is allowed for royalties paid, or other similar payments made, by the permanent establishment to any other part of the non-UK resident company in respect of the use of intangible assets held by the company.

This does not prevent a deduction for any contribution by the permanent establishment to the costs of creation of an intangible asset.

In this section “intangible asset” has the meaning it has for accounting purposes, and includes any intellectual property (as defined in section 712(3)).

No deduction is allowed for payments of interest or other financing costs by the permanent establishment to any other part of the non-UK resident company.

But the restriction in subsection (1) does not apply to interest or other financing costs that are payable in respect of borrowing by the permanent establishment in the ordinary course of a financial business carried on by it.