Section 13 TCGA 1992 has the effect of attributing to shareholders who are companies, individuals or trustees their proportionate share of capital gains made by non-UK companies which would be 'close' if they were resident in the UK. This is so irrespective of the number of non-UK resident close companies standing between the company realising the gain and the shareholders. (A close company, broadly, is one which is controlled by its directors or by five or fewer shareholders.)
Some of the UK's double tax treaties exempt the relevant gains from UK tax. Where no such treaty applies, the impact of the legislation is often reduced because gains attributed to a UK-resident close company remain in that company rather than being attributed to the shareholders.
Under provisions in clause 93 of the Finance Bill, any gains which would be attributed to a UK close company but for a relevant double tax treaty will now by-pass the UK close company and be attributed to the shareholders in the UK company, where those shareholders are trustees. In addition to trustees of family trusts, in certain circumstances this will include trustees of employee benefit trusts, charities and pension funds.
KPMG is lobbying for changes. Such representations will have most impact if we can quote 'real-life' examples of close companies with trustee shareholders who will be adversely affected. If you think that your group may fall into this category, and you would be willing for your circumstances to be quoted, please contact John Battersby, Tax Partner, on 020 7311 2244, or Fionnuala Tyrrell on 020 7311 3328.
Revenue information powers and legal professional privilege
If you ask for tax advice, will the Revenue be able to require sight of your tax adviser's letter?
Section 20 Taxes Management Act 1970 (TMA 1970) gives the Revenue power to obtain information without the taxpayer's consent if certain conditions are met. In the Revenue's view, s20 TMA 1970 is a complete, self-contained information power; ie, there is no principle in general law which overrides or operates in addition to the specific provisions in s20 which state the circumstances in which taxpayers and third parties cannot be compelled to produce documents demanded by the Inland Revenue. Last year, this view was confirmed by the Special Commissioner's decision in An Applicant v An Inspector of Taxes.
The Decision is subject to judicial review. If it is sound, however, then taxpayers and third parties may not be able to refuse to surrender documents demanded in a s20 notice on the ground that the documents are protected by legal professional privilege.There is a balance to be struck between the Revenue's need for information from taxpayers (who are sometimes recalcitrant) and the subject's right to privacy. An Applicant v An Inspector of Taxes prompted much discussion of where, in the context of s20 TMA 1970 and legal professional privilege, this balance should be struck and where, as the law now stands, it in fact is struck.
The Revenue has now set out in the Tax Bulletin its views on its rights under s20 TMA 1970 following this case. The Tax Bulletin article makes no distinction, in terms of privilege, between tax advice provided by lawyers and tax advice provided by advisers who are not lawyers.
In certain circumstances, professional advice is specifically exempted by s20 TMA 1970 from disclosure provided that it is in the hands of the professional adviser. The Tax Bulletin article states that such advice is not necessarily subject to disclosure if it happens to be in the hands of the taxpayer - under s20, the documents must be ones which 'contain or may contain information relevant to any tax liability to which the person is or may be subject'. The Revenue recognises that 'pure' legal advice (opinion on whether specific pieces of legislation apply to a transaction) is exempt from disclosure. Advice given after completion of a transaction will never be subject to a s20 notice.
However, according to the Revenue, legal advice which contains not only legal arguments but also factual information is likely to contain information which satisfies the 'relevant information' test. For example, in the Revenue's view, the document may explain the motive for entering into a transaction, where a motive test or a statutory provision containing reference to the purpose is relevant.
The Tax Bulletin article lists some practices and procedures which, the Revenue hopes, will resolve most of the difficulties in this area. In particular:
- information notices intended to obtain legal advice will specifically mention that intention;
- approval must always be obtained from Compliance Division at Inland Revenue Head Office before an Inspector can proceed; and
- copies of documents containing both disclosable material and 'pure' legal advice may blank out the latter.
The article also mentions that under Self Assessment an Inspector may request information only where it is reasonably required for the purpose of the enquiry into the taxpayer's return. Information which fails the 'relevant information' test above will also fail the test under Self Assessment.
A s20 notice requires prompt attention. However, it would be over hasty to assume that a s20 notice is bound to be in order. Therefore, any taxpayers faced with the prospect of s20 notices should contact their tax advisers immediately. For further information or assistance, please speak to your usual KPMG contact.
Press releases - w/e 12.5.00
8 May 2000 - Inland Revenue - tax exemption for compensation on accounts owned by Holocaust victims
Compensation paid by banks on dormant accounts opened by Holocaust victims and frozen during World War II will in future be entirely exempt from tax.
11 May 2000 - Inland Revenue -free support for employers from the Inland Revenue
The Inland Revenue's Enterprise Support Initiative consists of a telephone helpline dedicated to new and small employers, and locally based Business Support Teams who offer help and advice on all aspects of payroll.
For further information, or assistance, please speak to your usual KPMG tax contact.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
