CTM34450 - Residence: avoidance transactions: capital movements: EC directive

ICTA88/S765 and ICTA88/S765A

Section 765A (1) disapplies Section 765 to all transactions on or after 1 July 1990 that are within the European Council directive on movements of capital. The directive requires Member States of the European Community to abolish restrictions on movements of capital between persons residents in Member States. 'Resident' does not necessarily mean resident for tax purposes. But, most transactions within Section 765, which take place between tax residents of Member States, will be movements of capital within the directive. That is so even where in the case of a transfer of shares in a company, that company is not itself resident in a Member State. From 1 January 1994 the reference to Member States extends to those countries which are party to the European Economic Community Area Agreement.

Section 765A (2) requires a company which, but for Section 765A (1), would have needed special consent for a transaction, to report the transaction to HMRC within six months of carrying it out. The information to be supplied in the report is laid down in Regulations - look under 'movements of capital' in the Taxes Acts.

SP2/92 gives the HMRC interpretation of how the directive applies in some circumstances. It also explains the procedure for reporting. Head Office will operate this procedure. Refer any enquiries to CT&VAT, International CT.