Corporation Tax Act 2009 section 18D

Payments subject to deduction

Section 18D requires certain profits or losses arising from transactions between a UK resident person and a company's foreign permanent establishment to be excluded from the exempt amounts, where the payments would be subject to a UK income tax withholding obligation.

• Where a UK resident person would be required to deduct non-repayable income tax from payments to a company resident in the territory of the foreign permanent establishment, any profits or losses from that transaction must be excluded from the relevant profits or losses amounts under the foreign PE exemption.
• The withholding obligation is assessed by reference to Part 15 of the Income Tax Act 2007, taking into account any applicable double taxation arrangements between the UK and the territory in question.
• Banks are generally exempt from this exclusion rule — meaning their profits and losses from such transactions are not automatically stripped out — unless the transaction forms part of arrangements with a main purpose of avoiding the obligation to deduct income tax.
• The definition of "bank" for these purposes is that given in section 1120 of the Corporation Tax Act 2010.