PE domestic law

United Kingdom: Foreign PE exemption to become mandatory

On 21 May 2026, the United Kingdom (UK) government announced that the foreign permanent establishment (PE) exemption will become mandatory for all UK-resident companies conducting business through foreign PEs. Under the current regime, UK-resident companies are subject to corporation tax on the profits of their foreign PEs, with credit available for overseas tax paid, but may make an irrevocable election to exempt both the profits and losses of all their foreign PEs from UK corporation tax.

The announced changes propose to remove this elective framework and replace it with a mandatory exemption, meaning that both profits and losses attributable to foreign PEs will not be subject to UK corporation tax.

The policy objective appears aimed at preventing the use of foreign branch losses to shelter UK taxable profits, without a corresponding UK corporation tax charge on future profits when they arise. The reform has been released as a policy proposal rather than draft legislation, but the UK government has indicated that release of draft legislation can be expected over the summer.

For most companies, the mandatory exemption will apply for accounting periods beginning on or after 1 January 2027. However, for UK-resident companies with foreign PEs carrying on activities in connection with the exploration or exploitation of oil and gas, the measure will take effect from 1 September 2026.

India: ITAT Delhi holds that remote access to theater systems does not create a fixed-place PE and virtual services cannot constitute a service PE

On 13 May 2026, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled in case ITA No. 1890/Del/2025, AY 2022-23 that a nonresident company providing remote maintenance services for theater systems in India did not have either a fixed-place PE or a service PE under the India-Canada tax treaty. The case concerned a Canadian tax resident that had engaged an Australian vendor whose employee visited Indian customer sites for a total of 67 days during the relevant fiscal year to carry out on-site maintenance. The Canadian entity also had remote access to the theater systems for purposes of troubleshooting, software updates and bug fixes. The India tax authority's assessing officer (AO) had attributed profits to an alleged PE in India.

On the fixed-place PE question, the ITAT found that none of the four required tests (i.e., place of business, disposal, permanence and business activity) was satisfied. The Tribunal noted that the customers in India provided remote access to the nonresident company solely for maintenance purposes and that the nonresident company did not control the theater systems or conduct any business activity through them. On the service-PE question, the ITAT held that the 90-day threshold under the treaty was not met, given the admitted 67-day physical presence of the vendor's employee. The Tribunal further held that services rendered virtually from outside India cannot give rise to a service PE, as the concept of a "virtual service PE" is not contemplated by the India-Canada tax treaty and cannot be read into its provisions by judicial fiction.

The Tribunal also rejected the AO's reliance on the LinkedIn profile of the vendor's employee to establish his employment with the Canadian company, holding that an affidavit from the Australian vendor explicitly confirming the individual's employment status carried greater weight. Having concluded that no PE existed in India under any of the tests advanced by the India tax authority, the Tribunal did not consider it necessary to address the question of profit attribution.