The European Commission has formally requested the UK to amend its legislation providing for ‘exit taxes’ on companies.
The European Commission has formally requested the UK to amend its legislation providing for ‘exit taxes’ on companies.
‘The UK legislation at stake [TCGA 1992 s 185, Deemed disposal of assets on company ceasing to be resident in UK] results in immediate taxation of unrealised capital gains in respect of certain assets when the seat or place of effective management of a company is transferred to another EU/EEA State,’ the EC said. ‘However, a similar transfer within the UK would not generate any such immediate taxation and the relevant capital gains would only be taxed once they have been realised.’
The EC said it considered that the UK had failed to fulfil its obligations under EU rules by maintaining ‘these restrictive provisions’. Exit taxes ‘may breach the freedom of establishment’ because they ‘make it more expensive to transfer a company seat or place of effective management to another Member State than to another location in the UK’.
The request takes the form of a ‘reasoned opinion’, and in the absence of a satisfactory response within two months, the EC may refer the UK to the Court of Justice of the European Union.
Morgan James, a lawyer at Berwin Leighton Paisner, said the EC’s objection was that if a company could change its residence from say, Somerset to Essex, there would be no immediate tax charge on unrealised gains. ‘But are a move between two English counties and a move overseas really comparable choices that the tax code could interfere with?’ he asked.
‘Be that as it may, the UK rules technically do infringe EU law. The key question is how can they be brought into line? There was some discussion in the National Grid case about what form of exit tax would comply with EU law and it is not entirely clear from the judgment what the right answer is.’
Before a UK-resident company changes its residence it must notify HMRC and make arrangements to meet its UK tax liabilities.
The European Commission has formally requested the UK to amend its legislation providing for ‘exit taxes’ on companies.
The European Commission has formally requested the UK to amend its legislation providing for ‘exit taxes’ on companies.
‘The UK legislation at stake [TCGA 1992 s 185, Deemed disposal of assets on company ceasing to be resident in UK] results in immediate taxation of unrealised capital gains in respect of certain assets when the seat or place of effective management of a company is transferred to another EU/EEA State,’ the EC said. ‘However, a similar transfer within the UK would not generate any such immediate taxation and the relevant capital gains would only be taxed once they have been realised.’
The EC said it considered that the UK had failed to fulfil its obligations under EU rules by maintaining ‘these restrictive provisions’. Exit taxes ‘may breach the freedom of establishment’ because they ‘make it more expensive to transfer a company seat or place of effective management to another Member State than to another location in the UK’.
The request takes the form of a ‘reasoned opinion’, and in the absence of a satisfactory response within two months, the EC may refer the UK to the Court of Justice of the European Union.
Morgan James, a lawyer at Berwin Leighton Paisner, said the EC’s objection was that if a company could change its residence from say, Somerset to Essex, there would be no immediate tax charge on unrealised gains. ‘But are a move between two English counties and a move overseas really comparable choices that the tax code could interfere with?’ he asked.
‘Be that as it may, the UK rules technically do infringe EU law. The key question is how can they be brought into line? There was some discussion in the National Grid case about what form of exit tax would comply with EU law and it is not entirely clear from the judgment what the right answer is.’
Before a UK-resident company changes its residence it must notify HMRC and make arrangements to meet its UK tax liabilities.
