When a foreign company conducts business in another country, this can create a permanent establishment (PE) in that other country and a corresponding taxable presence. DTTs include rules that determine which country has the main taxing rights to avoid double taxation.
The Government is not planning any significant changes to these rules; However, the UK's domestic legislation, which sets the tax charge, was originally drafted in 2003 and reflected the PE principles of the OECD model at that time. Since then there have been a number of key international developments and the OECD's approach has evolved. This has generated uncertainty both around the definition of PE and the attribution of benefits to a PE.
The Government is therefore considering updating UK legislation to maximize certainty, allow greater flexibility in treaty negotiations and maintain alignment with DTT and the OECD model as they develop.
Some will be pleased to know that the consultation specifically indicated that there is an intention to maintain the current exemptions for UK investment brokers and managers (treating them as independent agents where certain conditions are met).
