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Non-resident companies and transfers of assets abroad: consultation

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HMRC is seeking views on proposed changes to two longstanding anti-avoidance rules that the European Commission considers to be incompatible with EU law.

  • Capital gains tax: TCGA 1992 s 13 (Attribution of gains to members of non-resident companies) aims to ‘prevent UK resident or ordinarily resident individuals keeping assets outside the scope of capital gains tax by holding them through a closely controlled company resident abroad’. The rule was introduced in 1965.
  • Income tax: ITA 2007 Pt 13 Ch 2 (Transfer of assets abroad) aims to ‘prevent UK ordinarily resident individuals avoiding income tax through a transfer of assets so that income becomes that of an offshore person while the UK ordinarily resident individual continues to be able to enjoy the income or to receive entitlement to capital or other benefits as a result of the transfer’. This rule was introduced in its original form in 1936.
The EC said in February 2011 that the current provisions restricted freedom of establishment and the free movement of capital, and went beyond what was reasonably necessary to prevent ‘abuse or tax avoidance’. The government announced in December 2011 that it would consult on proposed changes.
The proposed reforms aim 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’, HMRC said. ‘It is critical that the legislation continues to be effective in preventing tax avoidance.’
Alex Henderson, Tax Partner at PwC, said detailed tax expertise would be needed to assess whether there is ‘genuine’ economic activity. ‘Every person who submits a tax return and who has invested overseas will face questions only someone familiar with international tax law  will be able to answer with confidence. Taxpayers would prefer simple “bright line” tests that do not require significant technical advice,’ he said.
Reform of two anti-avoidance provisions: (i) the attribution of gains to members of closely controlled non-resident companies, and (ii) the transfer of assets abroad invites comments by 22 October 2012.
This news story was first published on 31 July 2012