The discussion document on controlled foreign companies produced by HM Treasury at the end of January includes proposals for a variation on the UK exit tax to apply for intellectual property assets moved overseas.
At the moment, if a company moves assets to another group company overseas, there will be a tax charge on any gain in value of that asset since it was originally acquired by the UK group – this applies to intellectual property as well as to any other assets. It is questionable (to say the least) whether this is in accordance with EU law; the European Commission has already made it clear that it does not approve of exit taxes like this. The ECJ has ruled that exit taxes for individuals (which the UK does not have) are incompatible with the EU treaty.
Exit taxes can be minimised by moving assets when they have little or not value; this is generally easier to do with intellectual property than with physical assets, which tend to have a value that diminishes, rather than increases, with time.
The proposals in the CFC discussion document suggest that HM Treasury and HMRC are moving away from the idea of trying to impose an exit tax on the value of intellectual property at the date of transfer but, instead (or possibly as well, it’s not wholly clear), to charge the UK transferor company with corporation tax on a later increase in value.
The document is clearly marked as being only for discussion at the moment, which is just as well – this raises rather more questions than answers, not least of which is the question of how such a tax charge would work with transfer pricing rules which would also require the UK company to deal with its group companies on an arm’s length basis.
HM Treasury are holding a stakeholder’s meeting on this topic later this month; more details will hopefully be available after that meeting.
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