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Taxation: Commission refers the UK to the European Court of Justice over taxation of capital gains

Recently, the European Commission decided to refer the United Kingdom to the EU Court of Justice (ECJ) for its tax regime concerning the attribution of gains to members of non-resident companies. Under UK legislation, a parent company in the United Kingdom is taxed for the capital gains of its subsidiaries in other Member States, while no similar taxation exists when subsidiaries are located in the United Kingdom.

If a UK resident company acquires more than a 10% stake in a company resident in another Member State and the latter company disposes of an asset and realises a capital gain, this gain may be taxable in the Member State where that company is resident. However, this gain will also be immediately attributed to the UK company and therefore be liable to corporation tax. The UK company cannot avoid this tax charge, even if it proves that the relevant transactions were carried out for valid commercial reasons and lacked any tax avoidance purpose.

Conversely, if a UK resident company has a similar stake in another UK resident company which, in turn, realises a gain on the disposal of an asset, the company disposing of the asset would be liable to corporation tax under UK law. However, the UK resident participating company would not be liable to any tax in the United Kingdom on such a gain.

The Commission is of the opinion that this restriction is disproportionate, in the sense that it goes beyond what is reasonably necessary in order to prevent abuse or tax avoidance.

The referral to the Court of Justice is the last step in the infringement procedure.


The UK legislation (Taxation Chargeable Gains Act 1992 section 13) concerning attribution of gains to members of non-resident companies provides for a difference in tax treatment between domestic and cross-border transactions and poses a restriction of the freedom of establishment and the free movement of capital which is contrary to EU rules (Articles 49 and 63 of the TFEU and Articles 31 and 40 of the EEA Agreement). In February 2011 the Commission sent a reasoned opinion formally demanding UK authorities to amend this discriminatory tax regime (see IP/11/158).

The Commission's case reference number is 2009/4131.

For press releases on infringement cases in the taxation or customs field see:

For the latest general information on infringement measures against Member States see:

On the October infringement package decisions: MEMO/12/794

On the general infringement procedure: MEMO/12/12

Contacts :

Emer Traynor (+32 2 292 15 48)

Natasja Bohez Rubiano (+32 2 296 64 70)

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