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Transfer of assets abroad and attribution of gains rules: consultation response

Mishcon de Reya's response to the Government consultation on gains attributed to members of non-resident closely controlled companies and transfer of assets abroad.

The Government consultation follows a formal request by the European Commission in 2011 that the UK amend its tax rules on the transfer of assets abroad and the attribution of gains made by non-resident close companies. These rules can give rise to a UK tax liability on non-UK companies or trusts in certain circumstances.

The European Commission considers that both of these UK tax regimes are incompatible with the fundamental EU rights to freedom of establishment and free movement of capital, because the restrictions they impose are disproportionate and go beyond what is reasonably necessary to prevent abuse or tax avoidance.

EU law does however allow the UK to restrict freedom of establishment to counteract tax abuse if the restrictions target "wholly artificial arrangements" that do not reflect economic reality, for example, because they are designed to escape the tax normally due on profits generated by activities carried out in the UK. This is the principle set out in the 2006 European Court of Justice Cadbury Schweppes decision.

Mishcon de Reya's response to this consultation covers our views and concerns in relation to the Government's proposed changes to the tax rules on the transfer of assets abroad and the attribution of gains made by non-resident close companies in order to comply with EU Treaty freedoms.

HM Revenue & Customs will now review its proposals in the light of the consultation responses, with a view to introducing legislation in the Finance Bill 2013. It will also publish a summary of responses later in the year.

To read our full consultation response, please click below.