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04 June 2007
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HMRC Briefs 40 and 41

Overseas leasing

Chapter 11 of Part 2 of the Capital Allowances Act 2001 contains rules in connection with leasing plant or machinery to lessees based outside the UK. Sections 109 and 110 restrict the amount of writing down allowances that may be claimed:

  • where s 109 applies, the rate of writing down allowances is reduced from 25% to 10%, but
  • where s 110 applies, no capital allowances are available.

HMRC are aware of arguments that these rules are contrary to EU law, in particular that they constitute an unlawful restriction on the freedom to provide services. HMRC now accept that in some circumstances these rules may be contrary to EU law and have decided not to contest certain claims.
Therefore, where plant or machinery is used for overseas leasing and the lessee is resident in an European Economic Area country they will adopt the following approach:

  • where the relevant EEA country gives the lessee a relief that is broadly equivalent to capital allowances, they will apply s 109 to restrict the rate of writing down allowances to 10% but they will not apply s 110;
  • where the relevant EEA country does not give the lessee a relief broadly equivalent to capital allowances, they will accept that the lessor is entitled to the normal 25% rate of writing down allowances.

Detailed advice is being given to Inspectors on the circumstances in which a lessor leasing to a foreign lessee is entitled to capital allowances at the 25% or 10% rate and on how to settle outstanding cases.
Following changes made in FA 2006, the overseas leasing rules do not apply to leases entered into on or after 1 April 2006.
HMRC Brief 40/07, 24 May 2007


COP10 reinstated

HMRC have reinstated Code of Practice 10 relating to substantial shareholdings exemptions. As announced in the 2007 Budget, HMRC are taking forward the proposals in the Review of Links with Large Business review. This included the 'extension of existing clearances so that as normal business practice, HMRC will provide businesses with their view of the tax consequences of significant commercial issues whenever there is uncertainty'.
Code of Practice 10, the guidance on clearances, says that where there is genuine uncertainty about the meaning of the law, HMRC will advise upon their interpretation of legislation passed in the last four Finance Acts. The proposal from the review means that, by Budget 2008, regardless of when legislation was enacted, HMRC will provide advice on the tax consequences of genuine significant commercial issues.
It was also said that during 2007-08 there would an early extension of clearance work where there is genuine uncertainty regarding the interpretation of tax legislation (without time limit) in two particular areas of tax law:

  • stamp duty land tax from Royal Assent of FA 2007; and
  • substantial shareholding exemption from 1 June 2007.

With regard to substantial shareholdings exemption (TCGA 1992, Sch 7AC), Tax Bulletin 84 dated 25 August 2006 explained that with effect from 19 July 2006, the Code of Practice 10 (Information and Advice) facility was no longer available for the purpose of the substantial shareholding exemption. However, following the recent Budget announcement, the facility will be reinstated from 1 June 2007.
The pilot will test a new way of working within HMRC. In order to ensure improved consistency for businesses seeking clearances, a structure has been put in place to channel Code of Practice 10 applications relating to the substantial shareholdings exemption through a small number of specifically trained individuals in local compliance offices or through client relationship managers in the appropriate sector of the Large Business Service. Businesses whose tax affairs are not normally handled by the Large Business Service should in the first instance send applications to the HMRC officer who would normally deal with their tax affairs. Companies whose tax affairs are handled by a client relationship manager in the LBS should submit applications to that manager.
Revenue & Customs Brief 41/07, 1 June 2007



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