To say that tax practitioners in the UK have become familiar with the requirement to read tax law so that it conforms to the requirements of EU law is something of an understatement. The latest incentive to do this comes from a couple of recent press releases issued by the European Commission.
One press release issued on 16th February 2011 (IP/11/158) makes it plain that the Commission considers that the transfer of assets abroad regime and the attribution of gains to members of non-resident companies restrict the free movement of capital and freedom of establishment. These provisions have long been regarded as vulnerable to attack in certain circumstances. The Commission's action is, no doubt, a good time to review current cases, but past cases should also be examined. Some claims for repayments in respect of certain past cases may also be anticipated.
Some practitioners have had to consider other gain attribution provisions, such as those affecting settlors with interests in non-resident settlements. These are also likely to face further scrutiny.
Another press release has attracted rather less attention. It was issued on 27th January 2011 (IP/11/78) and relates to Ireland, but is likely to be important for the UK as well. The Commission has long been concerned about exit taxes imposed on companies. The area has been debated academically but the Commission is clear:
"Under the Irish tax law, a company is taxed on its unrealised capital gains when it transfers its place of central management or control to another Member State. However, comparable transfers within Ireland are not taxed for unrealised capital gains.
The Commission considers that such taxation serves as a discriminatory penalty on companies wishing to transfer their place of central management abroad. The rules in question are likely to dissuade companies from exercising their right of freedom of establishment and therefore constitute a restriction to the freedom of establishment as laid down in Article 49 of the Treaty on the Functioning of the European Union and Article 31 of European Economic Agreement."
Given the fact that the Commission has already decided to refer to the Court of Justice Portugal, Denmark, the Netherlands, and Spain over their exit taxes, practitioners will surely have to consider the scope of the UK's regime for deemed disposals of assets on companies ceasing to be UK resident.