Corporation Tax Act 2010 section 938L

Foreign companies and foreign permanent establishments

Section 938L clarifies that the group mismatch scheme rules do not apply simply because a company does not bring amounts into account due to being a foreign company or having elected to exempt the profits of a foreign permanent establishment.

• The group mismatch rules in Part 21B look at situations where amounts are not brought into account as debits or credits under the loan relationship or derivative contract rules — but this section ensures that foreign companies are not inadvertently caught simply because of their non-UK resident status.
• Similarly, where a UK company has elected to exempt the profits or losses of its foreign permanent establishment from corporation tax, the fact that amounts relating to that establishment are not brought into account does not trigger the group mismatch provisions.
• However, if a non-UK resident company operates through a UK permanent establishment, that establishment must calculate its profits on arm's length principles — and any failure by the UK permanent establishment to bring intragroup loan relationship or derivative contract credits into account is not excused by the company's foreign residence and could therefore fall within the group mismatch rules.
• Separate rules apply to controlled foreign companies, which are addressed in section 938M.