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International issues in the Finance Bill 2013

The draft Finance Bill includes several areas where the government is seeking to bring legislation in line with EU law.  The key measures are on:

Group relief – Currently, a non-resident company can surrender losses realised by its UK permanent establishment to other UK resident group members only if there is no possibility of relief for the loss elsewhere.  From 1 April 2013, such losses will only be denied to the extent that they are actually used in another territory.
Unfortunately, when it comes to the losses of overseas subsidiaries, there has been no change of stance.

Exit charges  - Tax charges on the value of certain assets which are imposed immediately on the change of residence of a company, breach the fundamental freedom of establishment principles.  For accounting periods ending on or after 10 March 2012, it will be possible to defer payment of such charges until the time the asset is actually sold but only where the company becomes a resident of, and established in, another EEA member state.

Gains of non-resident companies – The circumstances in which a gain can be attributed to a UK shareholder will be updated (from April 2012) such that gains cannot be attributed:

• unless the shareholder has more than a 25% interest;
• where they arise from assets used only for the purpose of ‘economically significant’ activities carried on through a non-UK business establishment; or
• where neither selling, acquiring nor holding the asset formed part of a corporation tax or capital gains tax avoidance scheme.

Transfer of assets abroad – New exemptions will apply where the transfer is to another EEA member state and, viewed objectively, is a genuine transaction.

The government has responded to the challenges of complying with EU law while retaining anti-avoidance rules.  These changes bring a higher degree of certainty.  Whether or not they do comply with EU law is a question for the future.



Date: 15th February, 2013
Author: Cathy Corns


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