Changes to Corporation Tax Exit Charges

Who is likely to be affected

Companies which become or cease to be resident in the UK for tax purposes, or which transfer assets to or from a permanent establishment (PE).

General description of the measure

This measure changes UK rules regarding exit charges on certain unrealized profits or gains. Changes are being made to the mechanisms for deferring payment of exit fees when companies or assets move within the EU or European Economic Area (EEA).

There is a new market value rule for assets subject to UK corporation tax from a state that applies the EU Anti-Tax Avoidance Directive (ATAD).

Political objective

The changes included here implement the provisions of the ATAD. It applies to all taxpayers subject to corporation tax in one or more EU Member States and deals with exit taxes on unrealized capital gains on assets transferred out of tax jurisdiction.

The directive opposes base erosion and cross-border profit shifting, by providing a simple framework for exit charge rules that will be common across the EU.

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

During this period, the government will continue to negotiate, implement and enforce EU legislation. The outcome of these negotiations will determine which provisions will apply in relation to EU law in the future once the UK leaves the EU.

Context of the measure

the ATAD was adopted on July 12, 2016 and, insofar as it concerns exit taxation, must be implemented by January 1, 2020.

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

A draft law was published for consultation on July 6, 2018.

Detailed proposal

Effective date

The changes included in this measure will take effect on January 1, 2020.

Current law

The current applicable legislation is as follows:

• Chapter II, Part II and Chapter I Part VI of the Taxation of Taxable Gains Act of 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 Tax Administration Act 1970 (TMA 1970)

Proposed revisions

The legislation will be introduced in the Finance Bill 2018-19. The main changes brought about by this measure will be:

In TMA 1970:

• amending the provisions of Schedule 3ZB setting out how tax due under an exit charge payment plan (ECPP) will be payable to replace the current “single installment method” and “realization method” with a single deferral system, as foreseen in Article 5 of Council Directive (EU) 1164/2016 – the revised provision allows ECPP tax payable in installments over a maximum of 5 years
• this 5-year period may be terminated earlier in the following circumstances:
  • the deferral period ends for the entire ECPP tax on the occurrence of one of the “relevant events” set out in current paragraph 13(4)(a) to (d) of Schedule 3ZB
  • the deferral period ends for a proportionate part of the ECPP tax if there is either:
    • a disposal of an exit fee asset after the company ceases to be resident in the UK, or in the case of a non-resident company within the meaning of Part 2 of the Schedule, a PE qualifying event occurs
    • an exit fee asset ceases to be used for the purposes of an activity carried on by the company in a EEA territory, which would include, for example, the transfer of the asset to a PE located in a third country
• there are consequential changes to the information that must be provided in a company’s notification that it wishes to enter into an agreement ECPP
• a ECPP will only be available if the EEA the state to which property is moved is a party to the provisions of the mutual assistance agreement for debt collection, or in the case of a EEA Member State, an equivalent agreement with the EU
• it is also planned to fix the amount of a tax penalty that a company may be required to pay in the event of a persistent failure to make the payments due under a ECPP

In TCGA 1992 and CTA 2009:

• alternative reliefs for the deferral of exit taxes levied on capital gains or intangible assets under Section 187 TCGA 1992 or Sections 860-862 CTA 2009 are repealed
• provision is made to ensure that where the assets are subject to corporation tax (including corporation tax on chargeable gains) and the company is liable to pay an exit commission on such assets in an EU or EEA statement on the basis of the market value, this value is then used as the initial cost to calculate any gain or loss on a subsequent realization of the assets

Summary of impacts

Impact on Treasury (£m)

This measure should have a negligible impact on the Exchequer.

Economic impact

This measure should not have significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only concerns businesses.

The measure should not affect the formation, stability or breakdown of the family.

Equalities impacts

This measure should have no impact on groups with protected characteristics.

Impact on businesses, including civil society organizations

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

Only the small number of companies considering entering into an exit fee payment plan when transferring to a EEA territory must familiarize themselves with the rules, which would also be required under the old rules, as this legislation does not affect businesses in the normal course of business.

Operational impact (£m) (HMRC or other)

The impact of this change on HMRC will be negligible.

Other effects

Other impacts were taken into account and none were identified.

Monitoring and evaluation

The measure will be reviewed by contacting the taxpayer groups concerned.

Additional tips

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