Michael McGowan
Michael trained as a solicitor at Clifford Chance where he qualified as a tax lawyer in 1989. From then until the end of 2015, he worked as a corporate tax lawyer in a number of leading UK and US law firms (both in London and New York), spending 18 years as a tax partner at Allen & Overy, Shearman & Sterling LLP and latterly Sullivan & Cromwell LLP. He has worked on a very wide range of corporate, financing, fund formation and real estate transactions as well as representing clients in major tax disputes. He has acted as an expert witness in tax litigation and has written and lectured extensively. He teaches business tax law part-time at King's College, London.
Practice Area
Panel
- Contributing Author
10 Contributions by Michael McGowan
PRACTICE NOTES
Ordinary share capital and UK tax: definition, HMRC guidance, foreign entities, and effects on group relief, SSE, reorganisations, BADR/investors’ relief, employee shares, EIS/SEIS
The idea of ordinary share capital carries weight for UK tax purposes. This Practice Note outlines the principal tax reliefs that commonly hinge on ‘ordinary share capital’ (regardless of whether the issuer is a UK company), namely:
no gain/no loss treatment on intragroup transfers
corporation tax group relief
substantial shareholdings exemption
share for share exchanges and schemes of reconstruction
business asset disposal relief (formerly entrepreneurs’ relief) and investors’ relief
relief for employee share acquisitions, and
enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) relief
This Practice Note then considers how ‘ordinary share capital’ is defined for UK tax purposes.
No gain/no loss treatment on intragroup transfers
Where companies are within the charge to UK corporation tax and form a 75% group, assets can pass between them without triggering tax on any profits or gains. For more detail, see Practice Note: Intra-group asset transfers.
For this rule, a group comprises a principal company together with all of its 75% subsidiaries. A company qualifies as a 75% subsidiary only if, among other conditions, it has ordinary share capital in issue...
Tax
PRACTICE NOTES
UK anti-avoidance rules for dual-resident investing companies (DRICs): definition, BEPS/treaty residence tie-breakers, hybrid mismatches, and restrictions on group relief, capital allowances, capital gains and trading losses
A company can be tax resident in two states—see Practice Note: When a company is UK tax resident—Can a company have multiple residencies for tax purposes? For completeness, that guidance explores the question in detail. There can be drawbacks too at times. While this may carry drawbacks, such an entity might also exploit domestic reliefs available in each country where it is regarded as resident. For instance, a company incorporated in the US but with central management and control in the UK will, in principle, be resident in both the UK and the US (absent a competent authority agreement assigning exclusive residence under the UK/US double tax treaty, which is unlikely to be secured). Without rules stating otherwise, that company could set its losses against the profits of both a UK tax group and a US consolidated group of which it is a member. Accordingly, measures exist to stop a dual resident investing company (DRIC) from obtaining relief twice. This Practice Note outlines the principal UK anti-avoidance rules for DRICs, and clarifies what amounts to a DRIC for UK tax purposes.
Base erosion and profit shifting (BEPS)
The Organisation for Economic Co-operation and Development (OECD) base erosion and profit splitting...
Tax
PRACTICE NOTES
UK corporation tax: determining small company status for the distribution exemption—thresholds, staff headcount, turnover or balance sheet, consecutive years rule, aggregation for linked and partner enterprises, periods and exclusions
There are several situations in which a company’s corporation tax position varies according to its size, e.g. the taxation of distributions, transfer pricing, and research and development reliefs. This Practice Note sets out how the definition of a small company operates in relation to the exemption from tax on distributions received by small companies—see Practice Note: How are small companies taxed on distributions received? The definition also matters for companies that are not small, as alternative rules apply—see Practice Note: How are non-small companies taxed on distributions received?
What is a small company?
For the purposes of the distribution exemption, a company is treated as small for an accounting period if it qualifies as a small or micro enterprise under the definition in the Annex to Commission Recommendation 2003/361/EC, dated May 2003. The Commission’s criteria are determined by three specified thresholds or ceilings...
Tax
PRACTICE NOTES
UK corporation tax: distribution exemption for non-redeemable ordinary shares—definitions, share status (including non-UK entities), practical application and anti-avoidance
A non-small company will generally be liable to corporation tax on a distribution it receives unless, subject to certain other requirements, the distribution falls within an exempt category.
There are five exempt categories of distribution:
distributions on non-redeemable ordinary shares, explained further in this Practice Note
distributions from controlled companies
distributions in respect of portfolio holdings
distributions arising from transactions not designed to reduce tax
dividends on shares accounted for as liabilities
For more on the tax charge on distributions, see Practice Note: How are non-small companies taxed on distributions received. For the exemptions for small companies, see Practice Note: How are small companies taxed on distributions received? For what counts as a small company, see Practice Note: What is a small company for the purposes of the distribution exemption?
The exemption
A distribution is an exempt class if it is paid in respect of a share that is:
an ordinary share, and
not redeemable
What is an ordinary share?...
Tax
PRACTICE NOTES
UK corporation tax: distribution exemption for non-small companies—distributions from controlled and jointly controlled companies (from 1 January 2013): control and 40% tests, anti-avoidance, CFC interaction
A company that is not small is chargeable to corporation tax on any distribution it receives unless, subject to other conditions, the payment falls within an exempt category.
There are five exempt categories of distribution:
distributions from controlled companies, discussed further in this Practice Note (for receipts before 1 January 2013, see Practice Note: Distribution exemption—controlled companies before 1 January 2013 [Archived])
distributions relating to non-redeemable ordinary shares
distributions concerning portfolio holdings
distributions arising from arrangements not intended to reduce tax, and
dividends on shares recorded as liabilities
For more detail on the corporation tax charge on distributions, see Practice Note: How are non-small companies taxed on distributions received?
For guidance on the exemptions relevant to small companies, see Practice Note: How are small companies taxed on distributions received? and for an explanation of what counts as a small company, see Practice Note: What is a small company for the purposes of the distribution exemption?
The exemption
A distribution comes within the exemption for distributions from controlled companies if it satisfies condition A or condition B. Condition A is satisfied where the person receiving the distribution controls the company making the payment...
Tax
PRACTICE NOTES
UK corporation tax: distribution exemption for non-small companies—dividends on shares accounted for as liabilities, unallowable purpose, disguised interest and anti-avoidance
Unless a distribution falls within an exempt category (and subject to certain additional conditions), a non-small company will be chargeable to corporation tax on amounts received on such income; otherwise it remains taxable as received in the UK accordingly.
Exempt classes of distribution
dividends on shares presented as liabilities, discussed in more detail in this Practice Note
distributions paid by controlled companies
distributions relating to irredeemable ordinary shares
distributions on portfolio holdings
distributions arising from transactions not intended to reduce tax
For details of the tax charge on distributions, see Practice Note: How are non-small companies taxed on distributions received? For the exemptions relevant to small companies, see Practice Note: How are small companies taxed on distributions received? For the meaning of 'small company', see Practice Note: What is a small company for the purposes of the distribution exemption?...
Tax
PRACTICE NOTES
UK corporation tax: distribution exemption TAARs for non-small companies—controlled companies, quasi‑preference/redeemable shares, portfolio holdings and schemes economically equivalent to interest
Eight anti-avoidance rules block the use of one or more exemption classes for distributions received by companies that are not small. For an outline of the exempt categories, refer to Practice Note: How are non-small companies taxed on distributions received? For the definition of a small company, see Practice Note: What is a small company for the purposes of the distribution exemption? This Practice Note explains four of those anti-avoidance provisions, aimed at distributions which, absent such anti-avoidance rules, would otherwise fall within one or more particular exempt classes as set out in this Practice Note...
Tax
PRACTICE NOTES
UK corporation tax: Distribution exemption—general anti-avoidance rules for non-small companies (tax advantage schemes; payments for or affecting distributions; non-arm's length consideration; diversion of trade income)
Eight anti-avoidance rules block the use of one or more exempt distribution classes for distributions received by companies that are not small. For an outline of the exempt classes, see Practice Note: How are non-small companies taxed on distributions received? For further guidance on the meaning of a small company, see Practice Note: What is a small company for the purposes of the distribution exemption? The four anti-avoidance rules discussed in this Practice Note apply generally; that is, where a distribution offends any one of these rules, it cannot fall within any exempt class and will, as a result, be automatically chargeable to tax...
Tax
PRACTICE NOTES
UK tax classification of overseas entities: transparency versus opacity, key case law and HMRC’s post-Anson guidance and clearance practice
Characterising overseas entities for UK tax purposes
It is essential to characterise overseas entities for UK tax, as this determines how they, their members and potentially other connected persons are taxed...
Transparent — treated in a similar manner to a partnership or certain trusts for UK tax; not a taxable person in its own right for direct taxes; profits are commonly assessed on UK‑resident members as they arise, whether or not distributed
Opaque — broadly treated like a company and therefore a taxable person; its profits are typically not taxed in the UK until paid out to UK‑resident members, or where anti‑avoidance rules attribute undistributed profits to another person (eg under controlled foreign company rules)
Opaque for capital gains but transparent for income — a hybrid approach applying in particular to some non‑UK unit trust schemes and non‑corporate offshore funds
Distributions received from an opaque overseas entity also need to be characterised (as either...
Tax
PRACTICE NOTES
UK taxation of overseas entities and distributions: transparent versus opaque classification, characterisation of returns, hybrids, anti-avoidance, treaty issues and key case law
For UK tax, an overseas vehicle can be treated as either transparent or opaque. This Practice Note sets out how that characterisation affects the taxation of the entity itself and of its members. The classification directly shapes how tax applies to both the entity and its members. UK legislation gives limited guidance on whether an overseas entity should be viewed as transparent or opaque. For the relevant case law and HMRC’s position on classification, see Practice Note: Entity classification case law and HMRC’s interpretation, and Classifying overseas entities for UK tax purposes—checklist.
Taxation of overseas entities and their members
Transparent overseas entities
Where an overseas entity is treated as transparent, UK‑resident members (for example, shareholders, beneficiaries and partners) are charged to tax as the entity’s profits or gains arise. Consequently, from a direct tax standpoint, transparent entities generally operate as tax‑neutral conduits for members: the entity is not itself subject to UK corporation tax, income tax or capital gains tax in its own right, though it may sometimes be assessed as representative of those holding interests in it. This can occur, for instance, where UK‑resident trustees receive UK‑source income on behalf of...
Tax
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