UK corporate exit tax rules go against its European commitments, EU says

In its formal request, the Commission said that the exit taxes charged by HM Revenue and Customs (HMRC) "may breach the freedom of establishment" under EU rules, because no similar charge arises when a company moves to another location within the UK.

The UK taxes companies on gains in the value of any capital assets when a company moves its place of management and control to another country. Moving the place of management and control to another location within the UK does not lead to a similar charge as assets will only be subject to capital gains tax when they are 'realised', generally through being sold at a profit.

The Commission said that the UK had "failed to fulfil its obligations" to the EU by making it more expensive to transfer a company's place of effective management to another member state than to another location in the UK.

Corporate tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law.com, said that although the Commission's actions were unsurprising, the UK was unlikely to abolish its corporate exit tax altogether.

"We all knew this was coming – the only surprise is that it has taken the Commission so long to make it official," she said. "HMRC has been in denial for some time on this issue, so it will be interesting to see how it responds. But if anyone out there is waiting for the exit charge to be abolished altogether, don't hold your breath - expect complex legislative amendments that do the absolute minimum to alleviate the problem."

The request takes the form of a 'reasoned opinion', the second step of a three-stage enforcement process that the Commission can take against member states which do not fully pass EU directives into law. If the UK does not provide a satisfactory response within two months the Commission may refer it to the ECJ.

A Treasury spokesman told Out-Law.com that the Government was considering its position and would respond in due course.