Clause 32 - Temporary non-residents
Finance Bill
11:15 am
Richard Spring (Shadow Minister, Treasury; West Suffolk, Conservative)
As we have heard from the Minister, clause 32 removes a loophole so that temporary non-residents cannot avoid UK capital gains tax by becoming treaty non-residents. Essentially, that is a legitimate response to an exploitation of treaties drafted before section 10A of the Taxation of Chargeable Gains Act 1992 came into force in 1998.
Although we accept the underlying force and rationale of the clause, we need to explore two important elements. The first is the jurisprudence of the European Court of Justice and the impact of the possible implications of EU law on our tax laws. Obviously, that is a huge issue and a thread that will underlie many of our considerations during the passage of the Bill.
The second point was made by my hon. Friend the Member for Braintree, and I absolutely agree with him. We live in an era of tax differentials, which are growing ever larger not only internationally but within the European Union, where there are substantial tax reductions at all sorts of levels in some of the member nations, while our tax structures remain somewhat ossified.
I should like to bring the Committee’s attention to the European Court of Justice case of Hughes de Lasteyrie du Saillant v. Ministere de l’Economie, des Finances et de l’Industrie. The Advocate General suggested that authorities could provide for taxation of taxpayers returning after a relatively short period of non-residence. There seems to be an indication in the Hughes de Lasteyrie case that the five-year period in section 10A of the Taxation of Chargeable Gains Act 1992 may not be construed as a relatively short period for that purpose. It would mean that the legislation was contrary to European Union law. The Hughes de Lasteyrie case involved a Frenchman who changed his tax residence to Belgium. France charges an exit tax on individuals who do so, being primarily a deemed disposal at market value of assets that they hold at the time. Monsieur de Lasteyrie successfully argued at the European Court of Justice that such a measure discriminated against his moving to another member state of the European Union and was hence contrary to the freedom of establishment and freedom of capital articles of the EU treaty. That will therefore impact on the existing equivalent measures under United Kingdom tax law, including clause 32.
We need to be satisfied that the five-year period under section 10A of the 1992 Act is in line with the Advocate General’s comments. There is, however, an acknowledged balance to be struck in that the aim of section 10A is to stop people briefly going non-resident for tax avoidance purposes, as the Financial Secretary has said, and a potential opening of the door to the sort of avoidance that section 10A was designed to stop. The Government genuinely need to satisfy themselves that we have proper, robust support that is safe from unexpected attack under EU rules.