The UK has been given two months to amend it’s current legislation is respect of corporate exit charges – or potentially face a hearing in front of the ECJ (European Court of Justice).
For some time now it has been thought that UK domestic legislation could be at odds with EU legislation, which offers a “freedom of establishment” (Article 43 of the Treaty).
As a recap, current legislation provides that unrealised capital gains become immediately chargeable to corporation tax if a company changes its residency and moves abroad – effectively for tax puposes, the company is treated as disposing of its assets at their market value and immediately re-acquiring them…hence the term “exit charge”.
Following on from some of the earlier ECJ decisions, many commentators have felt that these “charges” were potentially at risk of challenge should the ECJ ever be called to pass judgement.
A similar case was previously heard in respect of the Hungarian tax regime (known as Cartesio) in which a Hungarian law firm wanted to relocate to Italy but were potentially subject to similar Hungarian exit charges in the process.
Judgements have already been given at an individual level confirming local laws did indeed limit the individuals right to a freedom of movement of establishment – for example the de Lasteyrie case involving French exit charges (ECJ case C-9/02 de Lasteyrie du Saillant  ECR I-2409) or the “N” case (Case C-470/04 N v Inpsecteur van de BelastingdienstOost) involving the application of Dutch exit charges.
The potential impact for HMRC could be massive and would enable many companies to now leave the UK tax net and move to more benign tax regimes (Ireland for example) without being clobbered with tax charges for the pleasure.
Watch this space!