Corporation Tax Act 2009 section 18G

Anti-diversion rule

Section 18G requires that certain "diverted profits" arising in a foreign territory are stripped out of the adjusted relevant profits amount of a UK resident company's permanent establishment abroad, thereby preventing those profits from benefiting from the foreign PE exemption.

• The rule applies where a company has an adjusted relevant profits amount for a foreign territory in a relevant accounting period, that amount includes diverted profits, and none of the statutory exemptions in section 18I is available.
• Where the rule applies, the diverted profits must be removed from the adjusted relevant profits amount, so they remain within the UK corporation tax charge rather than being sheltered by the foreign PE exemption.
• The "adjusted" relevant profits amount is the relevant profits amount recalculated by stripping out any gains or losses that are chargeable gains or allowable losses for corporation tax purposes.
• Whether profits count as "diverted" is determined by a separate motive test set out in section 18H; the exemptions that can disapply the rule are set out in section 18I.