Introduction Background
49.This legislation updates this anti-avoidance provision to maintain its compatibility with EU law, and makes certain other amendments to improve the clarity of the rules.
50.Broadly, the “transfer of assets” rules impose a charge to income tax on an individual who is ordinarily resident in the UK (or, from 6 April 2013, an individual who is resident in the UK) where there has been a transfer of assets and, as a result of the transfer (and/or any associated operations), income becomes payable to a person abroad, but an individual can still enjoy income, or receive or have entitlement to receive a capital sum or other benefits from the arrangements.
51.An infraction notice (Reasoned Opinion) was issued by the European Commission on 16 February 2011. The Commission argued that the transfer of assets legislation breaches the treaty freedoms of establishment and movement of capital.
52.On 30 July 2012 the Government published a consultation document proposing a way of reforming the legislation to ensure EU compatibility, and also certain other changes to improve the clarity of the provisions. The Government's response to the consultation was published on 11 December 2012, together with draft legislation.
53.The legislation adds a new exemption which operates where the EU treaty freedoms are engaged and which focuses on whether the nature of transactions is genuine and whether they serve the purpose of the freedoms. (There is an existing exemption where there is no tax avoidance purpose, or where the transactions are genuine commercial transactions, and any tax avoidance purpose was incidental.) Business transactions will not be regarded as genuine unless they are on arm's length terms and, in the case of transactions for the purposes of a business establishment, give rise to income attributable to economically significant activity that takes place overseas.
54.These changes will provide exemption for genuine commercial business activities overseas and also for transactions that do not involve commercial activities but that are nevertheless genuine transactions that are protected by the single market.
55.There is also a provision which allows for the bifurcation of a relevant transaction into a part which is genuine and a part which is artificial, so that the transfer of assets tax charge only falls on income from the artificial part of the transaction.
56.The statutory definition of a ‘person abroad’ for transfer of assets purposes is amended by this legislation so that a company’s domicile status is not taken into account to determine whether it is a ‘person abroad’. A company will be a ‘person abroad’ if it is resident outside the United Kingdom. Companies incorporated outside the United Kingdom but nevertheless resident in the United Kingdom for tax purposes will no longer automatically be treated as a ‘person abroad’ for these purposes.
57.This legislation also makes a series of other changes to the transfer of assets provisions aimed at clarifying the way certain aspects operate.
58.There is an amendment to provide greater clarity around the prevention of double charging, in circumstances where the same income could be the subject of both a transfer of assets charge and also a charge under another part of the Taxes Acts.
59.Finally there is a change that clarifies how the transfer of assets rules operate in relation to reliefs under double taxation agreements. This will make it clear that neither a treaty provision nor the transfer of assets legislation can allow a relief that would not otherwise be due.