Exit case to open tax floodgates

A group of UK companies are considering launching a European Court of Justice
challenge against tax charges imposed on UK businesses that relocate their
tax residence to another EU member state.

Under current rules, a UK company that shifts its headquarters or board to
another country, and in so doing ceases to be a UK tax resident, is deemed to
have disposed of all its assets at market value and is liable for tax on any
gains from this ‘sale’. Legal experts believe that, as the rules stand, they
contravene the EC Treaty, as they restrict a company’s right to freedom of
establishment in the EU.

A lawyer advising a number of large companies on EU law said: ‘People are
thinking about this and all it is going to take is one company to go through the
European Court of Justice.’

A successful challenge would drive a hole through the UK’s attempts to keep
huge multi-nationals in the UK. HSBC has said it might relocate, while Barclays
has suggested it might move if it is successful in buying ABN Amro.

The UK exit charge rules tax departing residents on their assets even though
they have not actually been sold. A Treasury spokesman said the government was
confident that exit charge rules were compatible with EU law.

But the government is believed to be in informal talks with the European
on exit charges and is consulting with other member states on how to co-ordinate
exit charge laws.

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