In February 2011 the European Commission (EC) issued the UK
Government with two notices (reasoned opinions) requiring them to
review two areas of the UK's anti-avoidance tax legislation.
The EC argued that:
Section 13, TCGA 1992 – gains attributed to members of a
closely controlled non-resident company; and
Chapter 2 of Part 13, ITA 2007 – transfer of assets
breached the treaty freedoms of establishment and movement of
As a result, the Government were forced to make changes to the
UK tax legislation. Finance Act 2013, which received Royal Assent
on 17 July 2013, contained amendments which the Government believes
ensures that these areas of legislation no longer breach the
fundamental freedoms under EU law.
Attribution of Gains to Members of Non-Resident Companies
Section 13, TCGA 1992 operates by attributing chargeable gains
realised by non-UK resident closely controlled companies to UK
resident participators in proportion to their interests.
Measures contained within the Finance Act 2013 have modified the
previous legislation by creating a new exemption which excludes
gains deriving from genuine business activity within the EU.
Transfer of assets abroad
This legislation was designed to prevent individuals avoiding UK
tax by using offshore structures to shelter income. In broad terms,
the transfer of assets abroad rules impose a UK income tax charge
on an individual who is resident in the UK where there has been a
transfer of assets and, as a result of the transfer, income becomes
payable to a person abroad, and a UK resident individual can still
enjoy income, or receive or have entitlement to receive a capital
sum or other benefits from the arrangement. The rules have
typically targeted transfer of assets into non-resident companies
and non-resident trusts.
Previously there were exemptions from these charges where the
individual could satisfy HM Revenue & Customs that there was no
UK tax avoidance motive for the transfer or that the transactions
were genuine commercial transactions and any UK tax avoidance was
Finance Act 2013 has modified the existing legislation by
creating a new exemption which operates where the EU treaty
freedoms are engaged and which focuses on whether the nature of the
transactions is genuine and whether they serve the purpose of the
A genuine transaction must be on arm's length terms (unless
made for personal reasons). Any assets transferred and income
arising therefrom must be used, or arise from, overseas activities
consisting of the provision of goods or services to others on a
Potential Planning Opportunities
The above changes to the UK's anti-avoidance legislation now
provide opportunities for UK resident individuals to establish
vehicles undertaking genuine economic activity in other EU
countries (for example, Ireland) in order to benefit from lower
rates of Corporation Tax.
However, to ensure that income, profits or gains are not
attributed to the UK resident individual, the following conditions
The economic activities should consist of the provision of
goods or services to others on a commercial basis; and
The overseas company must have a suitable presence in the
foreign country. Therefore, its activities should involve the use
of locally based staff (including employees, agents or
contractors), premises and equipment.
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.
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Under current law, where a business subject to corporation tax or income tax reallocates an existing asset into its trading stock, the basic rule is that there is a deemed market value disposal of the asset...
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