Policy paper

Changes to the Corporation Tax exit charges

Published 6 July 2018

Who is likely to be affected

Companies that become or cease to be resident in the UK for tax purposes, or that transfer assets into or out of a Permanent Establishment (PE).

General description of the measure

This measure makes changes to the UK rules concerning exit charges on certain unrealised profits or gains. There are changes to the mechanisms for deferring payment of exit charges when companies or assets move within the EU or European Economic Area (EEA).

There is a new market value rule for assets coming within the charge to UK Corporation Tax from a State that applies the european Anti Tax Avoidance Directive (ATAD).

Policy objective

The changes included here implement the provisions of the ATAD. It applies to all taxpayers that are subject to corporate tax in one or more member states of the EU and deals with exit taxes on unrealised Capital Gains on assets transferred out of the tax jurisdiction.

The Directive counters the erosion of tax bases and the cross-border shifting of profits, providing a simple framework for exit charge rules that will be common across the EU.

On 23 June 2016, the EU referendum took place and the people of the UK voted to leave the EU. Until exit negotiations are concluded, the UK remains a full member of the EU and all the rights and obligations of EU membership remain in force.

During this period the government will continue to negotiate, implement and apply EU legislation. The outcome of these negotiations will determine what arrangements apply in relation to EU legislation in future once the UK has left the EU.

Background to the measure

The ATAD was adopted on 12 July 2016 and in so far as it relates to exit taxation must be implemented by 1 January 2020.

The changes included in this measure have not been subject to prior consultation.

Draft legislation was published for consultation on 6 July 2018.

Detailed proposal

Operative date

The changes included in this measure will have effect from 1 January 2020.

Current law

Relevant current law is as follows:

• Chapter II, Part II and Chapter I Part VI of the Taxation of Chargeable Gains Act 1992 (TCGA 1992)
• Chapter 2 Part 3, Chapter 3 Part 5, Chapter 3 Part 7 and Chapter 14 Part 8 of the Corporation Tax Act 2009 (CTA 2009)
• Section 59FA and Schedule 3ZB of the Taxes Management Act 1970 (TMA 1970)

Proposed revisions

Legislation will be introduced in Finance Bill 2018-19. The principal changes made by this measure will:

In TMA 1970:

• amend the provisions of Schedule 3ZB setting out how tax due under an exit charge payment plan (ECPP) will be payable to replace the current ‘simple instalment method’ and the ‘realisation method’ with a single system of deferral as set out in Article 5 of Council Directive (EU) 1164/2016 - the revised provision allows for ECPP tax to be payable in instalments over a maximum of 5 years
• that 5 year period may be ended earlier in the following circumstances:
  
  • the deferral period ends in respect of the whole of the ECPP tax on the occurrence of any of the ‘relevant events’ set out in current paragraph 13(4)(a) to (d) of Schedule 3ZB
    
  • the deferral period ends in respect of a proportionate part of the ECPP tax if there is either:
    
    • a disposal of an exit charge asset after the company ceases to be UK resident, or in the case of a non-resident company within Part 2 of the Schedule, a PE qualifying event occurs
      
    • an exit charge asset ceases to be used for the purposes of a business carried on by the company in a relevant EEA territory, which would, for example, include the transfer of the asset to a PE situated in a third country
• there are consequential changes to the information required to be supplied in a company’s notification that it wishes to enter into an ECPP
• an ECPP will only be available if the EEA state to which an asset is moved is party to the provisions of the agreement for the Mutual Assistance on Recovery of Debts, or in the case of an EEA member state, an equivalent agreement with the EU
• provision is also made to set the amount of a tax-geared penalty that a company can be liable to pay if there is a continuing failure to make the payments due under an ECPP

In TCGA 1992 and CTA 2009:

• the alternative reliefs for postponement of exit taxes charged on Capital Gains or intangible fixed assets under section 187 TCGA 1992 or sections 860-862 CTA 2009 are repealed
• provision is made to ensure that where assets come within the charge to Corporation Tax (including Corporation Tax on chargeable gains) and the company is liable to pay an exit charge on those assets in an EU or EEA state based on the market value, then that value is used as the starting cost for computing any gain or loss on a subsequent realisation of the assets

Summary of impacts

Exchequer impact (£m)

2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024
-	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only affects companies.

The measure in not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure is not expected to impact on any of the groups with protected characteristics.

Impact on business including civil society organisations

There is no administrative impact on businesses or on civil society organisations.

Only those small number of companies considering entering into an exit charge payment plan on transfer to an EEA territory need to familiarise themselves with the rules, and this would be required under the old rules as well, because this legislation does not affect companies in the normal course of their business.

Operational impact (£m) (HMRC or other)

There will be negligible impact on HMRC for this change.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change contact Philip Donlan by:

• telephone: 03000 585 504
• email: philip.donlan@hmrc.gsi.gov.uk