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Pension transfers
HMRC has terminated its existing reciprocal agreements with the Republic of Ireland, Jersey, Guernsey and the Isle of Man for the transfer of pension rights with effect from 6 April 2006.
From 6 April 2006, when the simplified pension scheme tax regime is introduced, overseas transfers to these four countries will not be subject to HMRC discretion, and individuals will not have to meet any conditions as is the case under the current tax rules and the reciprocal agreements. The new rules will make it easier to make transfers than the existing bilateral arrangements and all parties to the agreements have therefore agreed that they should be terminated.
Guidance on the new overseas transfer rules is provided in part 14 of the Registered Pension Schemes Manual which is available on the HMRC website.
www.hmrc.gov.uk
Loss relief change
Following the judgment of the European Court of Justice in Marks and Spencer plc v David Halsey Case C-446/03, see 'Partial victory', Taxation, 5 January 2006, page 327, the UK's loss relief legislation for groups of companies is to be amended slightly.
In its judgment, the court rejected the view that group relief for losses should extend in general to all EU subsidiaries, but held that relief should be available in the UK for the otherwise unrelievable losses of some group companies resident in other states. The Government therefore intends to introduce legislative changes to reflect these principles in the 2006 Finance Bill.
However, anti-avoidance provisions will ensure that loss relief will be denied where arrangements either:
- result in losses becoming unrelievable outside the UK that were otherwise relievable, or
- give rise to unrelievable losses which would not have arisen but for the availability of relief in the UK,
if the main purpose or one of the main purposes of those arrangements is to obtain UK relief. These measures are effective from 20 February 2006 and details will be included in the 2006 Finance Bill.
It is probably fortunate that Marks & Spencer's victory in the European Court of Justice was not more resounding, says Peter Penneycard, director of national tax at PKF, as if it had been, the potential loss to the UK Government would have been greater, and its reaction inevitably would have been stronger. Effectively, the legislation is being changed to embody the decision, so that group relief in the UK can only apply to an overseas subsidiary's losses if those losses cannot be used in the jurisdiction of that subsidiary. He says 'it is understandable that the Government is ensuring that companies cannot artificially devise ways of obtaining loss relief', but that it is important to ensure that where companies genuinely cannot use those losses, they should be able to use them in the UK.
Simon Concannon, partner and head of tax at national law firm Walker Morris said 'the announcement illustrates the core issue inherent in the ECJ's ruling that cross border group relief should be allowed where there are “no possibilities” for the non-resident subsidiary to use the losses in its own EU state in the future. Is this to mean no economic possibility or no legal possibility and what parameters should be given to such concepts?' He goes on to say that the European Court recognised 'that a key benefit of group relief was the cashflow advantage of using losses earlier than would otherwise be the case if the losses could only be used on a single company basis. However, the court did not consider that this was a benefit which should necessarily be available on a cross border basis. If a literal interpretation of the "no possibility" rule is taken then the economic effect of waiting to use the losses could render the losses effectively valueless. If demonstrating a legal block on the use of the losses is insufficient then what is the value in the court's limitation to the restriction of group relief?'
He says that the Government has implicitly accepted 'that a commercial transaction, including a liquidation for non-tax purposes, could be an acceptable basis for demonstrating the "no possibility" test is satisfied. Where an overseas subsidiary is making substantial losses, one may well find a range of commercial reasons to liquidate the subsidiary and commence a variation of the business in another entity. The irony would be if the UK tax regime created an incentive to move businesses from one Member State to another Member State both outside the UK'.
HMRC press release dated 20 February 2006
No offence intended!
HMRC's controversial advertisement depicting a plumber hiding under a kitchen sink and urging members of the public to report 'self employed people who don't pay their tax' has been amended. Various organisations complained to the Advertising Standards Authority about the advertisement, including the Federation of Small Businesses who said that it was a slur on the self employed in general. The wording on the advertisement is now more specific saying 'With your help, we'll make sure people whose business is not registered for tax have nowhere to hide'. A spokesman for the FSB says that the FSB is 'pleased that the wording of the advert has changed. Our members want people who do not register for tax to be brought to book as they can use this to undercut our members who operate legitimate businesses. However, the original wording was clumsy and so it had to be changed to reflect the intention of HMRC more clearly. The ASA has not yet reported on our complaint and we await that judgment but we are happier with the new wording'.
Commenting on the changed wording, HMRC say, 'We did listen to and had a dialogue with the ASA. While we still believe that there was nothing wrong with the original copy, we were happy to change to prevent further misinterpretation'.
This unfortunate episode causes one to ask if this kind of advertising is the best way to spend taxpayers' hard-earned cash and also calls to mind something about shooting first and asking questions later …
However, unperturbed, on 27 February HMRC launched a television campaign, aimed at galvanising 'honest members of the public' into telling HMRC about people who evade paying their taxes.
