HMRC is consulting on proposals to amend two anti-avoidance tax law provisions to ensure that UK legislation is compatible with EU law.
The move is expected to prevent UK residents avoiding capital gains tax (by holding assets through closely controlled company resident abroad) and the transfer of assets abroad (preventing UK ordinarily resident individuals from avoiding income tax through a transfer of assets so that income becomes that of an offshore person).
The European Commission is responsible for maintaining conditions which support the single market in goods and services and ensuring that the tax legislation of member states is compatible with the treaty freedoms, for example freedom of establishment, that underpin the EU single market. In February 2011 the commission said HMRC’s two pieces of tax legislation were “disproportionate’ and therefore incompatible with the treaty freedoms of the single market”.
Anti-avoidance tax rules must not go beyond “what is reasonably necessary in order to prevent abuse or tax avoidance and any other requirements in the public interest,” the commission has said.
In order to comply with European law, the UK government has set out proposed reforms which “aim to allow individuals to pursue genuine economic activity across borders, in accordance with single market principles”.
The proposals include:
- introducing an avoidance motive test and expanding the categories of assets excluded from charge under section 13 of the Taxation of Chargeable Gains Act 1992
- adding to the transfer of assets legislation a further exemption test based on objective criteria
Law firm Macfarlanes said the proposed changes to UK tax rules would be helpful although it remains to be seen how in practice they would be applied.
The proposals are expected to be introduced in legislation in the Finance Bill 2013. The closing date for comments on the consultation is 22 October.
