UK and International Tax news

EC Requests Change To Exit Taxes On Companies

Friday 30th March 2012

The EC has formally requested the UK to amend its legislation providing for exit taxes on companies. The legislation at stake results in immediate taxation of unrealised capital gains in respect of certain assets when the seat or place of effective management of a company is transferred to another EU/EEA State.  In comparison, a similar transfer within the UK would not generate any such immediate taxation and the relevant capital gains would only be taxed once they have been realised.

The EC considers that the UK has failed to fulfill its obligations under EU rules by maintaining these restrictive provisions.  Exit taxes may breach the freedom of establishment as they make it more expensive to transfer a company seat or place of effective management to another Member State than to another location in the UK.

The ECs request takes the form of a reasoned opinion (second step of EU infringement proceedings). In the absence of a satisfactory response within two months, the EC may refer the UK to the CJ of the EU.

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