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5.2. Treatment of Foreign Profits / Losses

See Section 4.1. Although the UK taxes on a worldwide basis, non-UK branch profits can be exempted from UK taxation by election.  The election applies to all accounting periods starting after the election is made and to all the branches of the company.  The election is irrevocable and has the effect of exempting all profits of the branch, including gains and equally. As a consequence of the election for exemption of foreign branch profits, branch losses are equally denied.  Certain businesses may not elect to exempt profits (e.g. life insurance, shipping and aircraft operations, and most investment activity).

Where no election is made, profits from non-UK branches are computed and taxed in the normal way for UK resident companies.  However, the UK tax will generally be reduced by credit for local direct taxes paid, either under a treaty or via the UK’s unilateral relief rules.