LONDON | The European Commission said Friday it had formally requested the United Kingdom to amend its legislation providing for exit taxes on companies. As it stands, the UK legislation that has risen concerns results in immediate taxation of unrealised capital gains in respect of certain assets when the seat or place of effective management of a company is transferred to another European Union or European Economic Area member State.
On the contrary, a similar transfer within the UK would not generate any such immediate taxation and the relevant capital gains would only be taxed once they have been realised.
According the official release,
“The Commission considers that the United Kingdom has failed to fulfil its obligations under EU rules by maintaining these restrictive provisions. Exit taxes may breach the freedom of establishment as they make it more expensive to transfer a company seat or place of effective management to another Member State than to another location in the UK.”
Exit taxes are taxes typically levied when a legal or natural person changes of tax residence. The British legislation introduces a punishing discrimination for those leaving the UK for other EU or EEA countries.
The infringements procedure has three stages: formal notice, reasoned opinion and referral to the Court. The first stage takes the form of a request for information in order to investigate the case and remains confidential. This Commission’s request has taken the form of a reasoned opinion (second step of EU infringement proceedings).
In the absence of a satisfactory response within two months, the Commission may refer the United Kingdom to the Court of Justice of the European Union.