EU moves on UK corporate exit taxes

The European Commission has taken another step in trying to force the UK to change its rules on exit taxes, stating that they infringe EU law.  It's prodded a few times in this area, and late last week issued a reasoned opinion (step two in the infringement proceedings) that the UK has failed to fulfill its obligations under EU law. 

As a reminder, the UK taxes companies on latent gains in capital assets when a company moves its place of management and control overseas, without leaving the assets in a UK permanent establishment.  Moving the place of management and control within the UK doesn't lead to a similar charge on gains.  As a result, the EC considers that the rules breach the principle of freedom of establishment, as they make it more expensive to move the company to another Member State than to move within the UK.  The matter periodically arises in cases and the key issue that the EC has with the UK laws is that the tax is on the latent gain immediately, and that this is disproportionate: there has been some suggestion through case law that the EC may accept some sort of deferral of the gain, so that the UK could retain taxing rights over the gain up to the point of leaving the UK, but tax it only on actual realisation - but enforcing such deferral might be a bit interesting.

The UK has two months to reply, failing which the next step is a referral to the European Court of Justice.  Watch this space.

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