The European Commission has formally requested the United Kingdom to amend two discriminatory anti-abuse tax regimes. This represents the second step of the Commission's infringement procedure.
The request concerns "the transfer of assets abroad and attribution of gains to members of non-UK resident companies", as the Commission "considers there to be discrimination, seeing as investments outside the UK are taxed more heavily than domestic investments".
The Commission points to two specific pieces of UK legislation. The first is the transfer of assets abroad legislation, which stipulates that if a UK resident individual invests, by means of transferring assets, in a company incorporated or managed in a separate EU member state, the resident is liable to pay tax on the income generated by the said company. By contrast, if the same individual were to invest in a UK-based company, he or she would not be subject to taxation - only the company would.
The second infringement identified by the Commission regards the regime for the attribution gains to members of non-UK resident companies. When a UK resident company acquires more than a 10% share of an EU member state registered company, and the latter company sells assets, realizing capital gains, "the gains are immediately attributed to the UK company", which becomes liable for corporation tax on these gains. "If, on the other hand, the UK company had invested in another UK resident company, only the latter would be taxable on its capital gains".
The Commission regards these stipulations as discriminatory because "the difference in tax treatment between domestic and cross-border transactions restricts two fundamental principles of the EU's Single Market, namely of the freedom of establishment and the free movement of capital". It also deems them "disproportionate", "in the sense that they go beyond what is reasonably necessary in order to prevent abuse or tax avoidance and any other requirements of public interest".
The UK now has two months to comply with the Commission's request, and, if a satisfactory response has not been received within this deadline, the Commission may refer the UK to the European Court of Justice.
The request concerns "the transfer of assets abroad and attribution of gains to members of non-UK resident companies", as the Commission "considers there to be discrimination, seeing as investments outside the UK are taxed more heavily than domestic investments".
The Commission points to two specific pieces of UK legislation. The first is the transfer of assets abroad legislation, which stipulates that if a UK resident individual invests, by means of transferring assets, in a company incorporated or managed in a separate EU member state, the resident is liable to pay tax on the income generated by the said company. By contrast, if the same individual were to invest in a UK-based company, he or she would not be subject to taxation - only the company would.
The second infringement identified by the Commission regards the regime for the attribution gains to members of non-UK resident companies. When a UK resident company acquires more than a 10% share of an EU member state registered company, and the latter company sells assets, realizing capital gains, "the gains are immediately attributed to the UK company", which becomes liable for corporation tax on these gains. "If, on the other hand, the UK company had invested in another UK resident company, only the latter would be taxable on its capital gains".
The Commission regards these stipulations as discriminatory because "the difference in tax treatment between domestic and cross-border transactions restricts two fundamental principles of the EU's Single Market, namely of the freedom of establishment and the free movement of capital". It also deems them "disproportionate", "in the sense that they go beyond what is reasonably necessary in order to prevent abuse or tax avoidance and any other requirements of public interest".
The UK now has two months to comply with the Commission's request, and, if a satisfactory response has not been received within this deadline, the Commission may refer the UK to the European Court of Justice.
