INTM610040 - Parties

Paragraph 1 of Schedule 4 defines the parties involved in Profit Fragmentation Arrangements as the resident party, the overseas party and the related individual.

»Ê¹ÚÌåÓýapp resident party is the party that is the subject of the legislation and to which the rules apply. »Ê¹ÚÌåÓýapp resident party must be a person resident in the UK.

»Ê¹ÚÌåÓýapp overseas party is the party to which the value is transferred under Profit Fragmentation Arrangements. »Ê¹ÚÌåÓýapp overseas party is defined as:

  • a person abroad within the meaning of s718 Income Tax Act 2007 (“ITA 2007â€�),
  • a company, partnership, trust or other entity, or any other arrangements established or having effect under the law of a country or territory outside the UK.

»Ê¹ÚÌåÓýapp related individual is the individual in relation to whom the enjoyment conditions must be met. »Ê¹ÚÌåÓýapp related individual can be:

  • the resident party,
  • a member of a partnership of which the resident party is a partner, or
  • a participator in a company which is the resident party.

»Ê¹ÚÌåÓýapp related individual must be an individual who is involved in the business of the resident party â€� note if the resident party is a body corporate the body corporate itself cannot also be the related party. »Ê¹ÚÌåÓýapp enjoyment conditions require there to be a relationship between the related individual and the value transferred between the resident party and the overseas party as a result of the material provision â€� this point is expanded on in INTM610110.

Example 3 � Defining the Parties

C Ltd. is a UK resident company which carries out a trade in the UK as a management consultancy firm. D is an individual who is a 20% shareholder in C Ltd. and is responsible for all of the company’s overseas business, which is performed from the UK. D is also involved in another business, O BVI Ltd. through which he performs some personal consultancy services. D arranges for C Ltd.’s overseas customers to make payments to O BVI Ltd. which is a British Virgin Islands resident company.

In the above scenario when considering whether the Profit Fragmentation legislation is applicable C Ltd is the resident party, D is the related individual and O BVI Ltd is the overseas party.