UK breaking EU tax law

CIOT has complained to the EU Commission about problems with the Finance Act 2013, arguing that the UK’s non-compliance with EU tax law is causing distress and uncertainty for businesses and taxpayers say Harris & Co accountants Northampton

CIOT says that the UK"s failure to comply with EU tax law in a number of key areas is causing businesses and taxpayers to suffer uncertainty.

The professional body has submitted five individual complaints to the EU Commission on the Finance Act 2013 regarding the compliance of UK tax law with EU law in a range of areas including corporation tax, personal tax, anti-avoidance measures and inheritance tax.

Stephen Coleclough, CIOT president, said:

‘A number of measures in Finance Act 2013 were responding to identified inconsistencies between UK and EU law, for example in respect of the right of companies to have the freedom to establish themselves in any EU country, without facing discrimination. However we do not believe any of the measures have actually succeeded in making UK law EU-compliant. As a result businesses and taxpayers continue to be denied certainty in regard to significant aspects of their tax affairs.’

CIOT says that under current UK rules the capital gains tax provisions dealing with assets held through non UK-resident closely controlled companies remain contrary to EU fundamental principles of freedom of establishment and free movement of capital. It maintains that the rules which tax individuals in respect of assets and income transferred abroad are restrictive and disproportionate, in the sense that they go beyond what is reasonably necessary in order to prevent abuse or tax avoidance.

On inheritance tax CIOT says UK law remains discriminatory against individuals who are not domiciled in the UK but who are, or have been, married to, or in a civil partnership with, someone who is domiciled in the UK.

CIOT is also claiming that UK law on corporate exit charges breaches the right of freedom of establishment and is therefore discriminatory, and that the UK law on group relief discriminates against companies resident in other European Economic Area states with UK permanent establishments as compared with UK resident companies.

Coleclough said:

‘We are disappointed that at each stage HMRC and HM Treasury have ignored our arguments explaining why we do not think the proposals are compliant. Although there were some improvements to some of the provisions at various stages of the legislative process, the result is still not satisfactory.’

As a result, Coleclough warned that taxpayers who faced practical difficulties are likely to want to enforce their EU rights by taking a case to the Court of Justice of the EU.

Coleclough said that in addition to the costs and time involved, this could result in the Exchequer facing significant claims to repay tax and interest to taxpayers.