Loss Relief, Impact of Relocating Your Company
A recent opinion by Advocate General Kokott in the AURES Holdings case (C-405/18) serves as a warning to those considering the relocation of their companies pursuant to the freedom of establishment granted under Articles 49 and 54 TFEU. As background to this case, AURES Holdings (Aures) suffered a tax loss whilst it was established in the Netherlands in 2007. On 1 January 2008, it set up an organisational entity in the Czech Republic. Following the move, it remained a taxable entity in the Netherlands but did not carry on any economic activity. As such, it could no longer take the loss into account when calculating its tax liability in the Netherlands. Aures, therefore, looked to offset these losses against its tax liability in the Czech Republic. However, the tax authority for the Czech Republic refused this relief on the basis that the loss had not been suffered in the Czech Republic. Following proceedings brought by Aures to challenge this decision, the ECJ has been asked to determine (a) whether such circumstances fall within the remit of freedom of establishment and (b) if so, is it contrary to freedom of establishment to deny claims for a tax loss incurred in another member state before the relocation of the claiming company? The Advocate General made three key findings. First, she confirmed that Aures relocation should fall within the scope of freedom of establishment. Second, and most importantly, she considered that whilst there was a restriction imposed by the Czech Republic, this restriction was justified on the basis of the balanced allocation of taxing powers. Third, she found that the restriction was proportionate as no less severe restriction was evident. It is also interesting to note that AG Kokott referenced the contentious nature of the Marks & Spencer decision, which led her to conclude that the principle contained therein (that a subsidiary or a permanent establishment's final losses could be used by the parent) should not be extended.
The End is Nigh for the Non-Dom Regime
Published in ThoughtLeaders4 Private Client Magazine, Helen McGhee expert analysis of the current state of non-dom tax regime and it's future.
HMRC Makes Changes to COP9
On 14 June 2023, HMRC published a substantially rewritten Code of Practice 9 (“COP9”). Helen McGhee and Megan Durnford set out the key changes implemented as a result of this publication.
Pandora Papers: HMRC issues nudge letters
The Pandora Papers leak of almost 12m documents back in 2021 purportedly exposed the secret accounts and dealings (including potential tax evasion/ avoidance and money laundering) of 35 world leaders (including the late HM Elizabeth II), as well as many politicians and billionaires. The data was obtained by the International Consortium of Investigative Journalists in Washington DC and led to one of the biggest ever global financial investigations.
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Tax-Related Measures in the Autumn Statement 2022
On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This note focuses on tax measures included as part of that statement.