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UK subsidiary of Tax Exempt Parent

I have a situation where a UK company is owned 100% by a company in a tax free area.

The companies only function is to act as a marketing presence in the UK and as such its only income is marketing fees from the parent.

Its only expenses are payroll items for its employees and other admin costs ( travel, rent etc)

it has to charge vat on its maangement fees and has taxable profit that it pays CT on.

My question is. Can the company reorganise and act as a branch. If so then presumably it would just be a loss making branch as the Management Fee could be ignored.
Chris Walter


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There really...

...shouldn't be any difference between the UK taxable profits of operating as a branch as opposed to operating as a subsidiary.

The idea is that the branch should make the same taxable profits 'which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities ... and dealing wholly independently with the enterprise of which it is a branch' (see OECD Model Double Taxation Convention Article 7).

If the branch did not actually make a charge to its head office, an appropriate fee would be imputed by the Inland Revenue in computing its UK taxable profits.

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