UK: Proposal to make foreign permanent establishment (PE) exemption compulsory
Proposed to generally apply for accounting periods beginning on or after January 1, 2027
The Chancellor of the Exchequer on May 21, 2026, announced in a speech before Parliament a limited number of proposed tax measures as part of a package of proposals in response to the war in Iran, including a proposal to make the foreign permanent establishment (PE) exemption compulsory.
The proposed change would generally apply for accounting periods beginning on or after January 1, 2027, but for many oil and gas businesses it would apply from September 1, 2026 (by deeming an accounting period to end on August 31, 2026).
The measure aims to prevent multinational groups from relieving losses made in overseas branches against other profits (whether other profits of the company with overseas operations or through group relief) to address a perceived imbalance in the branches not paying corporation tax when they become profitable, either because foreign tax credits (FTCs) are available to shelter those profits or the branch is incorporated into an overseas (i.e., non-UK tax resident) subsidiary.
Read a May 2026 report prepared by the KPMG member firm in the UK