In TCGA 1992, after section 276 insert—

“276ANo gain/no loss: foreign permanent establishment exemption

(1)

On a no gain/no loss disposal by a company in relation to which an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments) has effect, the amount of the consideration which would secure that neither a gain nor a loss would accrue to the company on the disposal is to be arrived at after taking account of the operation of the provisions of Chapter 3A of Part 2 of that Act (with the result that that amount includes the amount which for the purposes of that Chapter would in the case of the company be the foreign permanent establishments amount attributable to the disposal for the accounting period in which it was made if the disposal were not a no gain/no loss disposal).

(2)

For the purposes of this section a no gain/no loss disposal is one on which by virtue of section 152 or any of the no gain/no loss provisions neither a gain nor a loss accrues to the company making the disposal.”

In section 15 (plant and machinery allowances: qualifying activities), after subsection (2) insert—

“(2A)

A business carried on through one or more permanent establishments outside the United Kingdom by a company in relation to which an election under section 18A of CTA 2009 has effect—

(a)

is an activity separate from any other activity of the company, and

(b)

is to be regarded as an activity all the profits and gains from which are not, or (if there were any) would not be, chargeable to tax.”

In the Table in section 61 (disposal events and disposal values), after item 6 insert—

“6A. Disposal event to which section 62A applies.

The relevant transition value (see section 62A).”and in column 1 of item 7, for “6” substitute “ 6A ”.

After section 62 insert—

“62ACases in which disposal value is transition value

(1)

Subject as follows, this section applies where an election under section 18A of CTA 2009 has effect in relation to a company and the operation of section 15(2A) brings about a disposal event consisting of plant or machinery beginning to be used for purposes other than those of a qualifying activity.

(2)

Where this section applies to a disposal event, the disposal value is the transition value.

(3)

The transition value is such amount as gives rise to neither a balancing allowance nor a balancing charge.

(4)

This section does not apply if—

(a)

the qualifying expenditure in respect of the plant or machinery, or of the group of assets of which it forms part at any time during a relevant accounting period, exceeds £5 million, and

(b)

the company has used the plant or machinery otherwise than for the purposes of a permanent establishment in a territory outside the United Kingdom at any time during a relevant preceding accounting period.

(5)

For the purposes of subsection (4)(a) plant or machinery used together constitutes a group of assets.

(6)

In subsection (4) “relevant preceding accounting period” means the accounting period in which the election under section 18A is made or an earlier accounting period ending less than 6 years before the end of that accounting period.”

In section 919 (manufactured interest on UK securities: payments by UK residents etc), after subsection (1) insert—

“(1A)

But this section does not apply if—

(a)

the manufactured interest is paid by a UK resident company in the course of a trade carried on through a permanent establishment in a territory outside the United Kingdom, and

(b)

section 18A of CTA 2009 has effect in relation to the company for the accounting period in which it is paid.”

In section 18 (entitlement to credit for foreign tax reduces UK tax by amount of credit), after subsection (3) insert—

“(3A)

References in subsection (3) to tax payable under the law of a territory outside the United Kingdom do not include tax paid by a company in relation to which an election under section 18A of CTA 2009 (exemption for profits or losses of overseas permanent establishments) has effect in respect of a relevant profits amount or relevant losses amount within the meaning of that section.”

For section 43 substitute—

“43Profits attributable to permanent establishments for purposes of section 42(2)

(1)

This section applies in determining for the purposes of section 42(2) the amount of the profits of a UK resident company on which corporation tax is or would be chargeable that is attributable to a permanent establishment of the company in a territory outside the United Kingdom.

(2)

The amount of the profits of the company that is attributable to the permanent establishment is the amount that the permanent establishment would have made if it were a distinct and separate enterprise which—

(a)

engaged in the same or similar activities under the same or similar conditions, and

(b)

dealt wholly independently with the company.

(3)

In applying subsection (2) assume that—

(a)

the permanent establishment has the same credit rating as the company, and

(b)

(subject to subsection (5)) the permanent establishment has such equity and loan capital as it could reasonably be expected to have if the equity and loan capital of the company were allocated in accordance with subsection (4).

(4)

The allocation is one made on a just and equitable basis between the permanent establishments in territories outside the United Kingdom through which the company carries on business and the entity that the company would consist of if each such permanent establishment were an entity distinct and separate from the company.

(5)

If the permanent establishment is in a full treaty territory (within the meaning of Chapter 3A of Part 2 of CTA 2009) subsection (3)(b) has effect subject to the double taxation arrangements having effect in relation to the territory.

(6)

Subsections (3)(b) to (5) prevail over any allotment of equity or loan capital to the permanent establishment made by the company.

(7)

If the company is an insurance company (within the meaning given by section 431(2) of ICTA), in applying subsection (2) assume that the permanent establishment has such free assets as it would have in the circumstances described in that subsection.

(8)

The Commissioners for Her Majesty's Revenue and Customs may by regulations make provision as to the meaning of “free assets” in subsection (7).”