Corporation Tax Act 2009 section 18O

Transfers of foreign permanent establishment business

Section 18O deals with how the transitional rules for the foreign permanent establishment exemption apply when a business carried on through a foreign permanent establishment is transferred to a connected UK resident company.

• When a company transfers its foreign permanent establishment business to a connected UK resident company, any accumulated net losses (the "transferred total opening negative amount") from that business must be calculated and transferred to the receiving company
• The calculation of the transferred negative amount differs depending on whether the transferring company had already elected for the foreign PE exemption before the transfer, or had not yet done so
• The receiving company must then apply the transitional matching rules to the transferred negative amount, ensuring that previously relieved losses are set against future exempt profits, thereby preventing the transfer from being used to circumvent those rules
• Once the transfer is complete, the transferring company must exclude the transferred negative amount from its own transitional calculations going forward