UK Foreign PE Exemption Becomes Mandatory from 2027 — Oil & Gas from 1 September 2026

The UK government is reforming how UK-resident companies are taxed on foreign permanent establishments (PEs). HMRC’s May 2026 policy paper and the July 2026 Corporation Tax information note confirm that the current elective foreign PE exemption will become mandatory. For most companies, profits and losses attributable to a foreign PE will be exempt from UK Corporation Tax for accounting periods beginning on or after 1 January 2027.

Oil and gas groups face a faster timetable. Where a UK-resident company has foreign PEs that carry on activities in connection with oil and gas exploration or exploitation, the measure applies from 1 September 2026. HMRC will deem affected accounting periods to end on 31 August 2026, with the new regime applying from the following day — so foreign PE losses arising after that date cannot shelter UK profits.

Today, a UK company is taxable on foreign PE profits unless it elects into Chapter 3A of Part 2 of the Corporation Tax Act 2009. Election permanently excludes future PE profits and losses from UK Corporation Tax, subject to anti-diversion and historic-loss clawback rules.

HMRC’s concern is asymmetry: groups that do not elect can still offset large foreign PE losses (or capital allowances) against UK profits, while corresponding foreign profits often never return to the UK tax base — for example because double taxation relief shelters them, or because a PE is subsidiarised once it becomes profitable. The reform extends territorial treatment by default while protecting the UK base from overseas loss sheltering.

Professional commentary from Norton Rose Fulbright and Paul Hastings highlights that groups currently relying on foreign branch losses against UK taxable profits should model a higher effective UK tax rate once exemption is forced.

The July 2026 tax information note states that Chapter 3A will apply by default rather than by election. The ‘total opening negative amount’ clawback concept is abolished and replaced with a transitional loss restriction that stops foreign-PE losses and related attributes carrying into a post-transition period to relieve UK profits of the company or wider group.

Targeted anti-avoidance rules accompany the reform. A purpose-based rule applies to arrangements made on or after 13 July 2026 that seek a tax advantage by reducing the impact of the new loss restriction. Separate rules stop taxpayers delaying commencement by shortening accounting periods. Draft Finance Bill 2026–27 clauses published on Legislation Day are open for technical comment until 7 September 2026.

HMRC systems already support PE exemption under the elective regime, so day-to-day filing mechanics should be familiar — the hard work is modelling, PE profit attribution, and documenting any pre-commencement steps.

Inventory every foreign PE: jurisdiction, activities (flag oil and gas), current election status, open loss pools, and capital allowance positions. Oil and gas teams should treat 31 August 2026 as a hard cut-off for using post-commencement foreign PE losses against UK profits.

Model corporation tax cash taxes for 2026–28 under mandatory exemption. Review whether group relief, transfer pricing, or PE attribution assumptions still hold. If you respond to the Finance Bill technical consultation, include anonymised evidence on transition costs.

Keep PE working papers, branch accounts, and CT600 schedules organised for adviser review. FinnAccountings helps UK and Ireland businesses centralise bookkeeping and corporation-tax prep drafts with Chartered Accountant insight before you or your ICAEW/ACCA adviser signs off filings — start a free trial to build an auditable pack ahead of the 2026–27 transition.

For other L-Day corporate measures, see our Finance Bill 2026–27 Legislation Day briefing and the Pillar Two Side-by-Side draft legislation update. Use the free tax calculator for high-level UK/Ireland planning estimates — not a substitute for CT600 advice.