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The European Commission (EC) has formally requested that the UK amend two discriminatory anti-abuse tax measures, which concern the transfer of assets abroad and attribution of gains to members of non-UK resident companies.
The first relates to the UK's ‘transfer of assets abroad’ legislation. Under the rule, if a UK resident transfers assets to a company that is incorporated and managed in another member state, the investor is subject to tax on the income generated by that.
However, if the same individual invested the same assets in a UK company, only the company itself would be liable for tax.
The second rule relates to the attribution of gains to members of non-UK resident companies: if a UK-resident company acquires more than a 10% share of a company in another member state, and the latter company realises capital gains from the sale of an asset, the gains are immediately attributed to the UK company, which becomes liable for corporation tax on these capital 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 EC considers both instances to be discriminatory, because investments outside the UK are taxed more heavily than domestic investments. This restricts two fundamental principles of the European Union’s single market, namely of the freedom of establishment and the free movement of capital.
The commission also believes the measures are disproportionate, going beyond what is reasonably necessary in order to prevent tax avoidance.
