On 13 July 2026 — L-Day for Finance Bill 2026-27 draft clauses — the government published legislation that turns the UK’s elective foreign permanent establishment (PE) exemption into a mandatory regime. For most UK-resident companies, profits and losses attributable to foreign PEs drop out of the corporation tax computation for accounting periods beginning on or after 1 January 2027. Oil and gas exploration and exploitation PEs move earlier: 1 September 2026, with a deemed period end on 31 August 2026.
If you are a CFO, PE portfolio finance lead or audit-committee chair sitting near overseas branches that never elected into the exemption, read this before anyone files a “no cash impact” note. Foreign PE losses stop sheltering UK profits. PE maps, profit attribution, capital allowances, loss attributes, Pillar Two ETR and pre-commencement restructuring all need a control owner now.
Primary sources: the draft legislation package, the May policy paper, the Exchequer Secretary’s written ministerial statement (HCWS221), and the L-Day collection for Finance Bill 2026-27 draft tax documents. Diary the PE consultation close on the GOV.UK page (general L-Day comments mostly 7 September 2026; confirm the PE-specific date before you miss it).
What changes — in one page
Under Chapter 3A, Part 2 CTA 2009, a UK-resident company is taxed on worldwide PE profits (with double tax relief) unless it makes an irrevocable election to exempt foreign PE profits and losses. Many groups stayed outside because overseas start-up losses, heavy plant allowances or mineral extraction spend still sheltered UK profits — including via group relief.
The policy paper says the Exchequer often held the downside without a matching UK charge on the upside: foreign tax credits can wipe UK tax on later PE profits, or the PE is subsidiarised once profitable. Oil and gas structures with large foreign losses and capital allowances were called out explicitly.
The draft reform therefore:
- Makes exemption mandatory — foreign PE profits and losses (and associated foreign tax credits on those profits) are excluded from the UK CT computation.
- Commences 1 January 2027 for most companies (accounting periods beginning on or after that date).
- Commences 1 September 2026 for UK-resident companies with foreign PEs carrying on oil and gas exploration/exploitation activities, via a deemed accounting period end on 31 August 2026.
- Replaces TONA — the total opening negative amount clawback is repealed; transitional rules stop pre-commencement losses and attributes relieving post-commencement UK profits.
- Adds targeted anti-avoidance from 13 July 2026 against accelerating loss use or gaming commencement (including shortened periods before 1 January 2027).
For shorter professional reads: Deloitte’s August 2026 Monthly Tax Update and 17 July Business Tax Briefing, KPMG on the mandatory Foreign Branch Exemption, and Norton Rose Fulbright on what UK-resident multinationals need to know.
Why CFOs should care even if “we already elected”
If you already live inside the elective exemption, the headline is quieter — but transitional drafting, capital allowances, anti-diversion reviews and PE definition still matter. If you never elected, this is a cash-tax and ETR event:
- Loss shelter ends. Foreign PE losses stop offsetting UK profits of the company and, where relevant, the group. Model 2026/27 and the first full new-rules period — not only steady state.
- Capital allowances move. KPMG notes plant and machinery attributable to foreign PEs must leave UK pools without a routine balancing adjustment, with a six-year look-back for certain assets over £5 million where balancing adjustments (and restricted losses) can still arise. That is a fixed-asset data job.
- Attribution becomes the return. Head-office cost keys, internal dealings and AOA/treaty splits stop being optional TP colour and become the line between exempt and taxable. Unrecognised remote-work and agency PEs still count.
- Branch vs sub reopens. FS, insurance and capital-intensive projects that kept branches for tax reasons need a fresh commercial, regulatory and TP paper — including whether to incorporate before commencement.
- Pillar Two and tax accounting. Substantive enactment moves deferred tax and ETR; those feed GloBE and safe harbours. Keep Pillar Two and corporate tax on the same scenario pack.
- Secondary claims. Inventory RDEC/Patent Box, employee share-scheme deductions linked to PE activity, and treaty WHT on PE-attributed receipts.
Oil and gas — the clock is already running
For foreign PEs tied to oil and gas exploration or exploitation, 1 September 2026 is a hard cut. The deemed period end on 31 August 2026 means H2 2026 can sit under two CT architectures in one statutory year — hitting forecast CT and instalments, group relief into UK profit companies, any last use of foreign PE losses against elevated UK profits, and interaction with Energy Profits Levy / the draft Oil and Gas Revenue Levy also on L-Day. Split any single “branch loss capacity” line by PE, by activity (oil and gas vs other), and by pre/post commencement.
Anti-avoidance — no cosmetic 2026 tidy-ups
The targeted anti-avoidance rule applies from 13 July 2026. It catches arrangements whose purpose is to blunt the new loss restrictions or game commencement. Accelerating loss crystallisation, rearranging PE attribution, or inventing a short period after L-Day needs a commercial spine and a tax risks memo. “We always close early in December” is fine when prior years prove it. A one-off short period invented to pull relief forward is not.
CFO controls cut — this month
- Map every foreign PE — treaty, domestic, deemed, and grey remote-work/agency footprints. Align to treaty PE or OECD Model where no treaty. Unrecognised PEs are still in.
- Segment losses and CAs — PE-by-PE carried-forward and forecast losses, pool assets attributable to foreign PEs, mineral extraction allowances, and >£5m look-back candidates. Owner: group tax + fixed assets.
- Re-run ETR and cash CT for FY26/FY27 with mandatory exemption on, oil and gas accelerated date where relevant, and with/without branch incorporations. Same scenarios to Pillar Two and deferred tax.
- Stress-test attribution — head-office cost keys, internal charges, treasury dealings, local PE books. If AOA cannot be evidenced today, fix data before exemption makes the split dispositive.
- Decide branch vs sub on one paper per material PE (regulation, licence, cost, contracts, TP, VAT, WHT, exit tax).
- Freeze cosmetic pre-commencement planning unless counsel clears the 13 July TAAR.
- Respond on consultation if insurance/Lloyd’s, FS multi-branch or capital-intensive drafts bite oddly — do not assume Finance Bill text is frozen.
- Audit committee one-pager — three numbers (UK CT uplift, deferred tax, Pillar Two delta), three risks (unmapped PEs, CA look-back, TAAR), one decision (any incorporation before 2027).
This sits with the wider 2026 international stack — Pillar Two Side-by-Side on L-Day, TP/PE reform, and cleaner profit maps into 2027. For PE-backed portfolios: buy-side models that still assume UK relief for foreign branch start-up losses after 2026 are wrong for non-elected groups. VDD should state election status, PE inventory, stranded attributes and oil and gas accelerated exposure. Warranties that only mention “Chapter 3A elections” are out of date.
Bottom line
Mandatory foreign PE exemption is base protection dressed as simplification. Exemption for foreign PE profits stays; parking foreign PE losses against UK CT does not. Oil and gas is already inside the window. Everyone else has one planning season — and a live TAAR from 13 July 2026 — before periods beginning on or after 1 January 2027.
Bookmark the draft legislation, policy paper, HCWS221, Chapter 3A CTA 2009, Deloitte’s August update and 17 July briefing, KPMG’s L-Day FBE note and May overview, and Norton Rose Fulbright’s multinational brief. Then open the PE register and the loss ledger.
General information for finance leaders, not advice on any specific structure, period or group. Take formal advice on live positions and consultation responses.