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The provisions in this article apply only to companies where an election has not been made for exemption for the profits of a foreign permanent establishment (D4.801A). For details of the double tax relief provisions that generally apply see Division E6.4.

The EC Mergers Directive¹ applies to the transfer of assets of a permanent establishment (PE) which a UK company has in one member state to a company resident in another member state in exchange for shares (or debentures) in that company. Where the directive applies, the country in which the PE is situated is not permitted to tax any capital gain arising on the transfer. However, where the state of the transferring company applies a worldwide system of taxation (as the UK does) art 10(2) of the directive allows that state to tax any profits or capital gains of the PE resulting from a merger, division or transfer of assets (as defined