Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Profits definition

What does Profits mean? Profits describes the net surplus generated by a business or asset after deducting relevant costs, used to assess performance, tax liabilities, distributions and damages. The precise meaning is context‑specific. For corporation tax in the UK and Ireland, legislation provides that a company’s profits include both income and chargeable gains (capital gains), not just trading results. Key distinctions include: - Accounting profit: measured under applicable GAAP. - Taxable profits: accounting profit adjusted by statute (for example, disallowables, capital allowances, losses and group relief). - Distributable profits: profits available for lawful dividends under companies legislation (UK Companies Act 2006, Irish Companies Act 2014), broadly the company’s...

UK taxation of overseas entities and distributions: transparent versus opaque classification, characterisation of returns, hybrids, anti-avoidance, treaty issues and key case law

Published by a LexisNexis Tax expert

Practice notes

For UK tax, an overseas vehicle can be treated as either transparent or opaque. This Practice Note sets out how that characterisation affects the taxation of the entity itself and of its members. The classification directly shapes how tax applies to both the entity and its members. UK legislation gives limited guidance on whether an overseas entity should be viewed as transparent or opaque. For the relevant case law and HMRC’s position on classification, see Practice Note: Entity classification case law and HMRC’s interpretation, and Classifying overseas entities for UK tax purposes—checklist.

Taxation of overseas entities and their members

Transparent overseas entities

Where an overseas entity is treated as transparent, UK‑resident members (for example, shareholders, beneficiaries and partners) are charged to tax as the entity’s Profits or gains arise. Consequently, from a direct tax standpoint, transparent entities generally operate as tax‑neutral conduits for members: the entity is not itself subject to UK corporation tax, income tax or capital gains tax in its own right, though it may sometimes be assessed as representative of those holding interests in it. This can occur, for instance, where UK‑resident trustees receive UK‑source income on behalf of...

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Michael McGowan

Michael trained as a solicitor at Clifford Chance where he qualified as a tax lawyer in 1989. From then until the end of 2015, he worked as a corporate tax lawyer in a number of leading UK and US law firms (both in London and New York), spending 18 years as a tax partner at Allen & Overy, Shearman & Sterling LLP and latterly Sullivan & Cromwell LLP. He has worked on a very wide range of corporate, financing, fund formation and real estate transactions as well as representing clients in major tax disputes. He has acted as an expert witness in tax litigation and has written and lectured extensively. He teaches business tax law part-time at King's College, London....

Web page updated on 22/05/2026

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