Definition of permanent establishment

An overseas company may have a permanent establishment in the UK if there is a fixed place of business in the UK where the company’s business is wholly or partly carried on. Alternatively the presence of an agent in the UK with the authority to do business on the overseas company’s behalf can also establish a UK permanent establishment.

An overseas company with a UK permanent establishment will be subject to UK corporation tax on the profits relating to that permanent establishment.

A UK company may similarly have a permanent establishment in an overseas country and pay business income tax on the profits that arise there.

An element of double taxation may arise with the same permanent establishment income potentially being taxed in the UK and overseas. Double tax treaties usually seek to establish taxing rights in relation to permanent establishments and the manner of relieving any double taxation. Recommendations on permanent establishment criteria were included in the Beps project. [1]