Investing abroad – refinement of new exemptions from UK anti-avoidance

Pat Dugdale

The UK transfer of assets abroad (TOAA) tax regime is designed to prevent individuals using overseas structures to shelter income from UK tax.  An example would be an individual who subscribes for shares in an offshore company, arranges for that company to acquire an income-producing asset and accumulate the income from that asset offshore. The TOAA provisions tax the UK resident on the income of the offshore company. Section 13 Taxation of Chargeable Gains Act 1992 contains broadly equivalent rules to prevent the avoidance of capital gains tax by attributing capital gains back to shareholders.

The European Commission regards both sets of provisions as contrary to EU freedoms of establishment and movement of capital in certain respects. Finance Bill 2013 will contain new exemptions intended to secure EU compliance, see the summary in our earlier blog. In response to concerns raised during the consultation process, it was announced today that the following changes would be made:

  • The new “genuine” transactions exemption from the TOAA charge will now partially exempt income from charge where it is attributable to a transaction of which part is genuine and part is not, in order to make the charge more proportionate;
  • The proposed changes to the TOAA “matching” rules are to be postponed until 2014 pending further consultation; and
  • The new capital gains attribution exemption for “economically significant activity” will be amended to remove the requirement for the activity to be carried on wholly outside the UK through a non-UK business establishment.

It remains to be seen whether other concerns raised in the consultation process will be addressed when revised draft legislation is published on 28th March. It is doubtful that the revised draft will go quite far enough to address all EC objections.

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