Finance Act 2015

Finance Act 2015

2015 CHAPTER 11

Introduction

Section 87: Exception for Companies With Limited Uk-Related Sales Or Expenses

Summary

1. This section sets out an exception from the application of section 86 (“Avoidance of a UK taxable presence”) for companies that meet either of two threshold conditions that are related to the UK-related sales revenue and UK-related expenses of the foreign company or companies connected with the foreign company.

Details of the Section

2. Subsection (1) provides that section 86 does not apply for an accounting period if the conditions in one or both of subsections (2) and (3) are met.

3. Subsection (2) defines the first condition. A foreign company meets this condition if the total of UK-related sales revenues made by it and connected companies in the accounting period does not exceed £10,000,000.

4. Subsection (3) defines the second condition. A foreign company meets this condition if the total UK-related expenses incurred by it and connected companies in the accounting period, do not exceed £1,000,000.

5. Subsection (4) sets out that where the accounting period is less than 12 months, the amounts in subsections (2) and (3) are to be reduced proportionally.

6. Subsection (5) defines expressions used in subsections (1) to (4) for the purposes of the section.

7. Subsection (6) determines that the amounts of “revenues” and “expenses” during the accounting period are those which, in accordance with generally accepted accounting practice (“GAAP”), are recognised as revenue or expenses in the company’s profits and loss account or income statement for the period.

8. Subsection (7) explains how to apply subsection (6) where a company does not draw up accounts in accordance with GAAP for the relevant accounting period.

9. Subsection (8) states how “Generally accepted accounting practice” is to be construed.

10. Subsections (9) and (10) allow HM Treasury, by regulations, to amend the amounts set out in subsections (2) and (3).

Background Note

11. The diverted profits tax is a new charge on diverted profits. The main objective is to counteract contrived arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base.