As set out in 4.2, there are specific rules setting out the evaluation of a PE’s profits, which seek to treat the PE as if it were a standalone company. Financing agreements between the branch and head office are disregarded, and there are rules which stop banks from allocating under-performing loans to the UK branch which is considered unacceptable, as well as other similar potential manipulations.
Tax rates on the profits of a PE are the same as for domestic corporations, however the small profits rate is not available to non-UK resident corporations unless explicitly set out under the terms of a Double Taxation Agreement. A deduction is given for a proportion of head office costs.
No tax is withheld on the transfer of profits to the head office.