Jason Reader
Many of those who advise private clients on mitigating UK tax liabilities will probably have experienced a sinking feeling on receiving requests from UK resident and domiciled clients who remain enthusiastic about using offshore companies despite s720 ITA 2007, or s13 TCGA 1992. The refrain “BVI companies don’t work for clients like you” normally only sinks in after enduring 15 – 20 minutes of hopeful monologue!
Prior to the Finance Act 2008 there was always the possibility of deferring foreign income from UK tax if it was captured in an offshore vehicle if the territory of registration had an OECD-type double tax treaty with the UK. I particularly favoured Cyprus for this sort of situation, if the circumstances were appropriate, but this avenue was closed in the Finance Act (see section 59).
However, it is dawning on many tax advisors that we may be entering a new era of tax planning, as the political waves caused by the EU Treaty start to influence national taxation. In their pursuit of political federation in Europe, the bureaucrats and politicians have failed to think through the tax implications of their goals.
The unforeseen tax implication is this: if the national boundaries of the federated states of Europe are dissolved and it is made illegal to stop a citizen or resident of one of the Member States from moving to or establishing a business in another Member State, then national anti-avoidance legislation which prevents this kind of movement can be considered illegal. In other words, anti-avoidance legislation like s720 ITA 2007 and s13 TCGA 1992 are overridden by the European Treaty, even if the UK resident and domiciled client is motivated by tax avoidance.
The European Court has ruled on this in relation to UK holding companies in the foreign income of UK residents from UK taxationa title=”Cyprus” Cyprus, or Ireland or Madeira.
The principles of both Cadbury and Vodafone should apply equally to private clients setting up companies in low tax territories such as
This is a new and developing area, and very exciting it is too. Calls from UK resident and domiciled clients are therefore being received with more enthusiasm here at St Thomas Street if they involve genuine overseas arrangements that can be implemented by a Cyprus company. True, the maxim “BVI companies don’t work for clients like you” generally still holds true for UK resident and domiciled clients, but a Cyprus company might provide new answers to previously insurmountable problems.