Corporation Tax Act 2009 section 18K

Total opening negative amount: "matching"

Section 18K explains how the total opening negative amount (representing cumulative past losses of foreign permanent establishments at the point of electing for exemption) is matched against subsequent profits, and how this affects the availability of the foreign PE profits exemption.

• The total opening negative amount is progressively reduced each accounting period by the aggregate relevant profits from all foreign PEs, until it reaches nil
• In any period where matching occurs, the foreign PE profits exemption does not apply to the aggregate relevant profits used in the reduction — meaning those profits are subject to UK corporation tax
• In the final period of matching, only the portion of aggregate relevant profits equal to the remaining opening negative amount loses its exemption; the excess remains exempt
• The company may specify in its tax return for that final matching period which particular part of the aggregate relevant profits retains the exemption