Multinational Companies: Taxation
The question
To ask the Chancellor of the Exchequer, with reference to her Oral Statement of 21 May 2026 on Middle East: Economic Response, Official Report, columns 731-733, whether her Department has made an impact assessment of the proposed reforms to foreign branch profits taxation on the level of (a) Exchequer revenues, (b) business investment, (c) employment in the energy sector and (d) energy prices for consumers.
Answered by Dan Tomlinson
The reforms to the taxation of foreign branch profits will ensure that profit attributable to UK activities is effectively taxed in the UK.
The reforms are expected to raise hundreds of millions of pounds per year, supporting the Government's package of economic support for households and businesses, while maintaining a highly competitive UK tax regime for companies operating overseas.
For most companies, it will be mandatory for profits and losses attributable to a foreign permanent establishment to be exempt from UK tax for accounting periods beginning on or after 1 January 2027. For UK-resident companies with foreign permanent establishments that carry on activities in connection with the exploration or exploitation of oil and gas, this measure will commence from 1 September 2026. This change will not impact the tax treatment of extractive activity in the UK Continental Shelf.
Exempting overseas profits is a common approach to international corporate taxation reflected in both domestic legislation and tax treaties worldwide. Once in effect, HMRC will monitor compliance with the new rules using its risk-based approach to protect tax revenue and in line with its ongoing and effective approach to engaging with Large Business taxpayers.
The government will undertake a technical consultation shortly, with draft legislation will be published in the summer, ahead of final legislation in Finance Bill 2026-27. A full Tax Information and Impact Note will be published at Budget 2026; along with a full policy costing as part of the fiscal and economic forecast undertaken by The Office for Budget Responsibility.
A policy paper published on 21 May 2026 sets out further detail on this reform: https://www.gov.uk/government/publications/foreign-permanent-establishment-exemption/foreign-permanent-establishment-exemption-policy-paper
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