Advocate General (AG) Rantos has opined in Gallaher Ltd v HMRC(Case C‑707/20) that an imposition of an immediate tax charge on asset transfers outside the UK tax net is compatible with EU law.
This request for a preliminary ruling from the Upper Tribunal decision ([2020] UKUT 354 (TCC)) involved the transfer of shares and intangible assets from UK tax resident companies to related companies resident in the Netherlands and Switzerland. The UK’s domestic legislation provides relief where intangible and capital assets are transferred between companies within the charge to corporation tax. However, as the shares and intangibles were transferred to a Dutch and Swiss company, these reliefs did not apply and the transfers triggered an immediate tax charge. The taxpayer argued that limiting the reliefs to transfers between UK group companies was an unjustified restriction on the freedom of establishment and/or the free movement of capital, and therefore the legislation imposing the tax charges should be disapplied.
The UT referred the following questions to the CJEU:
whether the principle of the free movement of capital can be relied upon in relation to legislation which applies to groups of companies;
whether either the freedom of establishment or the freedom to move capital can apply to a transfer of assets from an EU company to a non-EU company if both are owned by a third company that is resident in a different member state from the transferor; and
if either freedom has been breached, whether the domestic law should be construed as though the taxpayer had the right to defer payment of tax, even though the legislation did not contain this option at the time.
The AG concluded that the right to freedom of establishment did not preclude domestic UK law imposing an immediate tax charge on a transfer of assets by a UK resident company to a related company resident in Switzerland in a situation where those companies are both wholly owned subsidiaries of a common parent company tax resident in another member state, and in circumstances where such a transfer would be made on a tax-neutral basis if the related company were resident in the UK. This was because restrictions on the right to freedom of establishment resulting from the difference in treatment between national and cross-border transfers of assets within a group are justified by the need to preserve a balanced allocation of taxing powers. There was no need for UK law to defer the imposition of a tax charge in order to ensure that the restriction on tax neutral treatment was proportionate.
Advocate General (AG) Rantos has opined in Gallaher Ltd v HMRC(Case C‑707/20) that an imposition of an immediate tax charge on asset transfers outside the UK tax net is compatible with EU law.
This request for a preliminary ruling from the Upper Tribunal decision ([2020] UKUT 354 (TCC)) involved the transfer of shares and intangible assets from UK tax resident companies to related companies resident in the Netherlands and Switzerland. The UK’s domestic legislation provides relief where intangible and capital assets are transferred between companies within the charge to corporation tax. However, as the shares and intangibles were transferred to a Dutch and Swiss company, these reliefs did not apply and the transfers triggered an immediate tax charge. The taxpayer argued that limiting the reliefs to transfers between UK group companies was an unjustified restriction on the freedom of establishment and/or the free movement of capital, and therefore the legislation imposing the tax charges should be disapplied.
The UT referred the following questions to the CJEU:
whether the principle of the free movement of capital can be relied upon in relation to legislation which applies to groups of companies;
whether either the freedom of establishment or the freedom to move capital can apply to a transfer of assets from an EU company to a non-EU company if both are owned by a third company that is resident in a different member state from the transferor; and
if either freedom has been breached, whether the domestic law should be construed as though the taxpayer had the right to defer payment of tax, even though the legislation did not contain this option at the time.
The AG concluded that the right to freedom of establishment did not preclude domestic UK law imposing an immediate tax charge on a transfer of assets by a UK resident company to a related company resident in Switzerland in a situation where those companies are both wholly owned subsidiaries of a common parent company tax resident in another member state, and in circumstances where such a transfer would be made on a tax-neutral basis if the related company were resident in the UK. This was because restrictions on the right to freedom of establishment resulting from the difference in treatment between national and cross-border transfers of assets within a group are justified by the need to preserve a balanced allocation of taxing powers. There was no need for UK law to defer the imposition of a tax charge in order to ensure that the restriction on tax neutral treatment was proportionate.
