Taxation (International and Other Provisions) Act 2010 section 259FB

Counteraction of the excessive PE deduction

Section 259FB sets out how an excessive deduction arising in a UK permanent establishment (PE) is counteracted by restricting its use to dual inclusion income, with any unused amount carried forward to future periods.

• An excessive PE deduction can only be set against dual inclusion income — that is, income taxed in both the UK and the parent jurisdiction — for the relevant PE period.
• Any part of the excessive deduction that cannot be used in the current period because there is insufficient dual inclusion income is carried forward and may be set against dual inclusion income of future accounting periods.
• Dual inclusion income is defined as ordinary income of the company that is taxable both for UK corporation tax purposes and under the tax law of the parent jurisdiction for a permitted taxable period.
• A taxable period in the parent jurisdiction is "permitted" if it begins within 12 months of the end of the relevant UK accounting period, or if a later period is claimed and it is just and reasonable for the income to arise in that later period.