The European Commission announced last year that it had formally requested the UK to amend two anti-avoidance measures: the transfer of assets abroad legislation (s720 ITA 2007) and the attribution of gains to members of non-UK resident companies legislation (s13 TCGA 1992).
The Commission view these measures as being "disproportionate, in the sense that they go beyond what is reasonably necessary in order to prevent abuse of tax avoidance”. These provisions are a key part of anti-avoidance legislation in the UK and any change could have a profound impact on the structure of UK tax legislation and how individuals operate their businesses and hold their investments.
It is sections 720 and s13 which largely reduce the opportunity for taxpayers to shelter their income and gains from tax by the simple expedient of holding them via an offshore structure. The provisions, where they operate, pierce the veil of the offshore structures and essentially make the profits taxable in the UK.
The Commission believes discrimination exists as, if the individual had invested assets in a UK company (rather than a company within the EU) the individual would not be subject to tax; only the UK Company would be taxed on its income.
The Government announced on Budget Day 2012 that they propose amending the anti-avoidance legislation which can tax individuals on income and gains made in offshore entities. We expect the consultation process on this to start imminently and the changes implemented in Finance Bill 2013.