Taxation (International and Other Provisions) Act 2010 section 371KF

Category A income: permanent establishments in excluded territories

Section 371KF addresses how category A income is calculated when a controlled foreign company (CFC) operates through a permanent establishment located in an excluded territory outside the CFC's own territory.

• The section applies where a CFC has a permanent establishment (PE) in a territory that qualifies as an excluded territory, and that territory is different from the CFC's own territory
• Income arising from the activities of such a permanent establishment would normally be included in the CFC's category A income
• However, the same filtering conditions that apply to category A income under section 371KE are applied to the PE's income, but by reference to the PE's territory rather than the CFC's territory
• The practical effect is that PE income is only included in category A income to the extent it would fail the excluded territories conditions when tested against the territory where the PE is located