Annex 1: Minor changes in the law Change 61: Non–UK resident companies: transactions through brokers: section 1145
This change removes a difference between:
	the wording of one of the conditions which determines whether or not, in relation to transactions carried out by a non–UK resident company (otherwise than as a trustee) through a broker in the United Kingdom, the broker is the permanent establishment of the non–UK resident company and
	the wording of the parallel condition which determines whether,in relation to transactions carried out by any other non–UK resident through such a broker, the broker is the UK representativeofthe non–UK resident.
Prior to the enactment of section 148 of, and Schedule 26 to, FA 2003, sections 126 and 127 of FA 1995 applied to determine who was the UK representative of a non–UK resident (including a non–UK resident company) in respect of income or chargeable gains arising through a branch or agency in the United Kingdom. Section 127 of FA 1995 provides that certain branches or agents are not UK representatives in relation to income or chargeable gains arising from a transaction carried out through them, including, in particular, brokers who meet certain conditions in relation to the transaction.
Following the enactment of section 148 of, and Schedule 26 to, FA 2003, the provisions of FA 1995 only apply in relation to non–UK residents who are not companies and to non–UK resident companies in the capacity of trustee. The FA 2003 provisions determine whether or not a person is the permanent establishment of a company in another territory and, in the case of a permanent establishment in the United Kingdom, provide for the permanent establishment to be the UK representative of the non–UK resident company in relation to income or chargeable gains arising through the permanent establishment.
Under Schedule 23 to FA 1995, a branch or agency which is a UK representative is responsible for assessment and payment of the income tax and capital gains tax chargeable on the income and chargeable gains of the non–UK resident arising through the branch or agency. Under section 150 of FA 2003, a permanent establishment in the United Kingdom is responsible for assessment and payment of corporation tax on income or chargeable gains attributable to the permanent establishment.
Section 148(3) of FA 2003 provides that a company is not regarded as having a permanent establishment in a territory by reason of its carrying on business there through an agent of independent status acting in the ordinary course of the agent’s business. Schedule 26 to FA 2003 supplements that provision by, among other things, setting out the conditions under which transactions carried out through a broker in the United Kingdom are treated as carried out through an agent of independent status.
Paragraph 2 of Schedule 26 to FA 2003 provides for conditions that apply in determining whether a broker is a permanent establishment in respect of transactions carried out by a non-UK resident company through the broker in the United Kingdom. Under the FA 2003 legislation it was intended that these conditions would be the same as those that apply when determining, under section 127(2) of FA 1995, whether a broker is the UK representative of any other non-UK resident in relation to transactions carried out by that non-UK resident through the broker.
Section 127(2)(d) of FA 1995 contains the words “(apart from this paragraph)”. But those words are not included in the parallel condition in paragraph 2(2)(d) of Schedule 26 to FA 2003. No change was intended and that provision is in practice operated in the same way as section 127(2)(d) of FA 1995.
The effect of the additional words in section 127(2)(d) of FA 1995 is that the question whether the broker is to be regarded as the UK representative of the non–UK resident in relation to the income (or other amounts) in question is to be determined without reference to the condition in that paragraph. They are considered necessary to avoid the impasse that would otherwise arise in operating the condition in accordance with the following analysis:
	A transaction falls within section 127(2)(d) of FA 1995 only if there is no income or other amount chargeable to tax for the same tax year in relation to which the broker is the non–UK resident’s UK representative.
	If there is any other income or amounts deriving from another transaction carried out by the broker for the non–UK resident, section 127(1)(b) and (2) apply to determine whether the broker is the non–UK resident’s UK representative in relation to it.
	For the broker not to be the non–UK resident’s UK representative, the second transaction must fall within section 127(2).
	But absent the words “(apart from this paragraph)”, in applying the condition in section 127(2)(d) to the second transaction, the question whether the condition is met depends on whether it is met in relation to the first transaction.
This change removes the potential for such an impasse in the provisions for determining whether a broker in the United Kingdom is the permanent establishment of a non–UK resident company in relation to transactions carried out by the non–UK resident company through the broker. It does so by adding words equivalent to “(apart from this paragraph)” in section 1145(6).
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.