The government is planning changes to the UK rules concerning corporation tax exit charges on certain unrealised profits or gains when companies or assets move within the EU or European Economic Area (EEA)
It applies to all taxpayers that are subject to corporate tax in one or more member states of the EU and deals with exit taxes on unrealised capital gains on assets transferred out of the tax jurisdiction.
The directive counters the erosion of tax bases and the cross-border shifting of profits, giving a simple framework for exit charge rules that will be common across the EU.
The changes implement the provisions of the European Anti Tax Avoidance Directive (ATAD) which applies to all taxpayers that are subject to corporate tax in one or more member states of the EU and deals with exit taxes on unrealised capital gains on assets transferred out of the tax jurisdiction.
‘The Directive counters the erosion of tax bases and the cross-border shifting of profits, providing a simple framework for exit charge rules that will be common across the EU,’ the Treasury said in a statement.
The changes made by Finance Bill 2018-19, clause 37, Schedule 16 are part of the UK’s implementation of the EU Anti Tax Avoidance Directive (Directive (EU) 2016/1164 of the European parliament and of the Council of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market). Article 5 of the Directive deals with the subject of exit taxation, which member states will have to implement into legislation from 1 January 2020. This will be post Brexit so the government review this part of the Directive.
Taxes Management Act 1970 (TMA 1970) will be amended to reflect the directives of the requirement.
TMA 1970 will amend the provisions of Schedule 3ZB setting out how tax due under an exit charge payment plan will be payable to replace the current ‘simple instalment method’ and the ‘realisation method’ with a single system of deferral as set out in Article 5 of Council Directive (EU) 1164/2016 - the revised provision allows for exit charge payment plan tax to be payable in instalments over a maximum of 5 years.
There is also a provision to set the amount of a tax-geared penalty that a company can be liable to pay if there is a continuing failure to make the payments due under an exit charge payment plan.
Where assets come within the charge to corporation tax (including corporation tax on chargeable gains) and the company is liable to pay an exit charge on those assets in an EU or EEA state based on the market value, then that value is used as the starting cost for computing any gain or loss on a subsequent realisation of the assets.
HMRC policy paper, Changes to the Corporation Tax exit charges is here.
Report by Rob Munro
