Consultation on taxing gains made by non-residents on UK immovable property - the anti-forestalling rule - CIOT proactive letter

By Technical Team on 10 Jan 2018

The CIOT proactive letter sent to HMRC on taxing gains made by non-residents on UK immovable property - the anti-forestalling rule.

Our submission is available to view here.

HMRC have provided the following response:

"Many thanks again for the CIOT paper on the application of the anti-forestalling rule.

We are very conscious that customers are entitled to certainty in relation to the anti-forestalling rule in the period prior to the measure’s enactment, and believe that this certainty is achieved by the description of the rule in both the Consultation Document and the Technical Note.

In particular these documents set out that the rule will apply to arrangements, entered into on or after 22 November 2017, where:

  • the main purpose, or one of the main purposes, is to obtain a UK tax advantage for any person;
  • the tax advantage is in relation to tax to which that person would (apart from the arrangements) have become liable as a result of the charge to tax on gains accruing to non-residents that will come into force on 1 April 2019 (for companies) and 6 April 2019 (otherwise); and
  • that advantage arises by reason of any provisions of double taxation arrangements, but only in a case where the tax advantage is contrary to the object and purpose of those provisions

This wording, as set out in paragraph 19 of the Technical note, is rooted in the internationally agreed principles governing what the OECD Commentary calls “improper use of the Convention”. This is explored at length in the Commentary to Article 1 of the OECD Model (paragraphs 7 to 26.2 in the 2014 version).

At paragraph 9.4 the Commentary states that:

“…it is agreed that States do not have to grant the benefits of a double taxation convention where arrangements that constitute an abuse of the provisions of the convention have been entered into.”

This is subject to the principle set out in paragraph 9.5 (my emphasis to show how the Commentary is reflected in the formulation in the Technical Note):

“A guiding principle is that the benefits of a double taxation convention should not be available where a main purpose for entering into certain transactions or arrangements was to secure a more favourable tax position and obtaining that more favourable treatment in these circumstances would be contrary to the object and purpose of the relevant provisions.”

The wording has also appeared in the anti-forestalling rules for a number of recent measures (see for example, the rule in section 356OK CTA10, and the accompanying commencement provisions in section 80(5) of FA16, for the Transactions in Land provisions, and also section 917A ITA07 for the 2016 changes to the withholding tax rules). In practice, given the motive test, customers will have certainty as to whether actions they undertake could trigger the anti-forestalling rule.

Thank you again for your paper, and I hope my reply is helpful. We look forward to further correspondence on the wider consultation, and to CIOT’s response to the consultation as a whole."

Technical Team

Posted in: Submissions