Gary Richards and Kirby PDF

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Finance Act 2019 notes...

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Gary Richards: Finance Act 2019 notes: editorial - just a side show?   

some of the most important issues affecting UK tax are not encompassed within this year’s legislation thinks it was hasty legislation Changes made: - S.9 and s.25 FA 2019: reinstatement of relief for expenditure on certain types of intangible fixed assets (reversing bad changes of FA 2015) - S.13: extension of levying chargeable gains on non-residents making direct or indirect disposals of UK real estate. - S.30: introduction of relief for construction on buildings and structures permitted  reflecting a policy change of heart following the removal of industrial buildings allowances from 2008 onwards - s.21: picks up BEPS-related tightening up of permanent establishments

Retrospective changes to correct deficiencies in earlier legislation -

s.19: “hybrid and other mismatches: scope of Chapter 8 and ‘financial instrument’” s.24: “group relief etc: meaning of ‘UK related’ company”.

Anti-avoidance measures -

s.15 and Sched 3: tax charge on offshore recipients (and persons connected with them) in respect of intangible property s.16 and Sched 4: avoidance involving profit fragmentation arrangements s.47 & s.48: substitution of market value as regards stamp duty and stamp duty reserve tax on certain listed securities s.92 – 95: requirements i) to prepare impact analyses of certain anti-avoidance provisions ii) reviews of the effectiveness of these anti-avoidance provisions iii) a review of public health effects of gaming provisions, and iv) a review on time limits and the disguised remuneration loan charge.  For s.95, feels that Treasury was just introducing legislation without really addressing the underlying issues such as: o the focus on users not facilitators o HMRC’s performance over the past years o the possible impact of receiving sizeable tax demands on the physical or mental well-being of individuals

Y. BEER - Kirby v Thorn EMI: another view: the UK : the new tax haven (1986) 

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Is a parent company which has entered into a comprehensive agreement to sell three of its subsidiaries and agreed as an integral part of the transaction to ensure that no company in the seller’s group would compete in the United Kingdom with those three subsidiaries for five years, chargeable to corporation tax on the consideration for the restrictive covenant? it was held that such a consideration is not chargeable to corporation tax since it is not a capital gain in the hands of the recipient.  Normally, payment for a “keep out” covenant, when the recipient agreed not to trade in a certain country for the whole life of the patent rights was held to be a capital payment because have sterilized asset.  Taxpayer restricted just part of its group’s trading activities in one country, for a specific period. Such a restriction, prima facie does not reach the extent required by the case law to be considered as either related to the whole structure of the profit-making apparatus or as sterilisation of an asset.

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Surprisingly, the whole case ignores the other branch of the corporation tax, namely the income tax which is the proper tax to be charged on such a transaction.  The Thorn decision, although raising some doubts whether the control ability of the parent company upon its subsidiaries which has a monetary value of its own should not be considered as a capital asset when the parent company exerted that ability by entering into the restrictive covenant, should be criticised because of its failure to discuss the income tax issue.  The exemption of the taxpayer from corporation tax is not justified as a matter of tax policy and is not consistent with previous case law on restrictive covenants. It also enables the taxpayer to enjoy the best of both worlds escaping both income tax and capital gains tax on its profits....