ACCA Advanced Taxation (ATX) Practice Exam

What’s a common characteristic of all elections made regarding the profits of an overseas permanent establishment?

1. They are partially revocable.

2. They apply only to future overseas operations.

3. They are applicable to all future overseas PEs by the company.

4. They can be contested annually.

The correct answer is: They are applicable to all future overseas PEs by the company.

When considering the profits of an overseas permanent establishment (PE), the characteristic that stands out is that elections made regarding these profits typically apply to all future overseas PEs of the company. This means that once an election is made, it has a broader application that can influence the recognition of profits across any overseas PEs established in the future by the same entity. This characteristic aligns with the objective of ensuring consistency in tax treatment for profits arising from various overseas operations. By making an election that is applicable to all future PEs, a taxpayer can establish a clear and predictable approach towards how profits will be taxed, which is beneficial for both tax planning and compliance purposes. Understanding this characteristic helps clarify the implications of making an election regarding overseas profits, emphasizing that it is not limited to a single establishment or temporary in nature. Instead, such decisions have a lasting impact on the company's overseas tax position.