The Government published a consultation on tax avoidance involving profit fragmentation and has since published a summary of responses document. You can read the draft legislation, and the supporting explanatory note and tax information and impact note.

It was announced at Autumn Budget 2017 that HMRC would consult on proposals to prevent UK traders and professionals from avoiding tax by arranging for their UK business profits to accrue to entities resident in territories where no tax, or only a low rate of tax, is paid. These arrangements take a number of forms but all involve fragmentation of profit which in substance derives from a single activity, but which for tax purposes is said to arise in two or more jurisdictions.  The Government has taken action in recent years to ensure that the right amount of profit is taxable in the UK from large businesses carried on by groups partly in the UK and partly elsewhere. Measures have included Diverted Profits Tax (2015) and the Hybrids Mismatch legislation (2017). These measures generally apply only to larger enterprises. The avoidance arrangements described in this consultation document are generally undertaken by individuals and smaller entities or groups.

While it is unlikely that the proposed new profit fragmentation rules would directly affect charities (and they are certainly not the principal target),  it will depend on how the key concepts in the proposals are ultimately defined in the legislation. CTG liaised with HMRC officials to ensure that there were no unintended consequences for charities (as was the case with the Diverted Profits Tax until CTG secured a charity exemption).