Introduction Equity holders Overview Section 106: Restriction on losses etc surrenderable by UK resident
379.This section eliminates from group relief some amounts that are attributable to a foreign permanent establishment. It is based on section 403E of ICTA.
380.In most cases the profits of a foreign permanent establishment are taxed in the country where the permanent establishment is. The profits remain chargeable to United Kingdom tax but credit is given for foreign tax on the profits. If the permanent establishment is not profitable relief may be available for the loss etc in the foreign country. This section prevents relief being given for the same loss etc both in the foreign country and in the United Kingdom.
381.Subsection (1) restricts the operation of the section to companies resident in the United Kingdom.
382.Subsection (2) sets out the basic rule: a loss or other amount attributable to a foreign permanent establishment is not available for group relief if it qualifies for relief from non-UK tax.
383.Subsections (3) and (4) set out how to calculate the loss etc of a foreign permanent establishment. The calculation is done on the same basis as that for the calculation of the losses etc of a United Kingdom permanent establishment.
384.Subsection (5) explains the sort of relief from non-UK tax with which the section is concerned: it is relief from tax in the country where the permanent establishment is; and the relief is against the non-UK profits (defined in section 108) of any person other than the surrendering company. In other words, the section is concerned with foreign group relief.
385.Subsections (6) and (7) resolve a potential circularity in the rules. Foreign tax rules may deny relief for an amount if it qualifies for relief from United Kingdom tax. In that case, it would not be clear how the rule in subsection (5) operates.
386.The circularity is resolved by giving relief where the company is resident (that is, in the United Kingdom). But there is an exception to this rule if the company is also resident in the country where the permanent establishment is. In that case, United Kingdom relief is denied.