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EC refers UK anti-avoidance rules to European court

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The European Commission has decided to refer the UK to the Court of Justice of the European Union for its tax rules concerning attribution of gains to members of non-resident companies and taxation of transfers of assets abroad.

The EC said in February 2011 that the provisions restricted freedom of establishment and the free movement of capital, and went beyond what was reasonably necessary to prevent ‘abuse or tax avoidance’. HMRC’s consultation on proposed changes, designed to ‘strike a better balance between protecting tax receipts and allowing individuals to pursue genuine economic activity across borders in accordance with single market principles’, closed on 22 October.

The Chartered Institute of Taxation complained to the EC in 2009 about the existing legislation. The tax body said earlier this month, in a note setting out its initial response to HMRC’s consultation, that the proposals ‘do not fully address the EU law issues raised by infraction proceedings in relation to either the attribution of gains rules or the transfer of assets code’.

The CIOT added: ‘The response to address the freedom of establishment issue is inadequate and no attempt has been made to address the freedom to move capital issue, which, in our view, is relevant to both sets of provisions.’

In a second response published this week, the CIOT said: ‘We suggest that any immediate changes made to make the provisions of these codes more compliant with EU law (intended for Finance Bill 2013) should be viewed as an interim step and the opportunity be taken to undertake a full review in 2013 and beyond.’

The EC said on Wednesday that the rules set out in TCGA s 13 and ITA 2007 Pt 13 Ch 2 provide for ‘a difference in tax treatment between domestic and cross-border transactions and [pose] a restriction of the freedom of establishment and the free movement of capital which is contrary to EU rules’.