The classification of entities, and the meaning of "tax transparency", in United Kingdom tax law

Michael Terence McGowan

Research output: PhD ThesisPhD-Thesis - Research and graduation internal

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The thesis begins by exploring the main UK tax law definitions of those legal persons which are relevant for direct tax purposes. In particular, it explores the law, practice and tax authority guidance (such as it is) for classifying entities formed outside the UK. In so doing, it considers in detail the distinction between a “partnership” and a “company” for UK tax purposes, and the problems this raises. The thesis then considers the UK criteria for defining certain kinds of trust for UK tax purposes, including non-UK entities with trust-like characteristics such as foundations. It then considers to what extent the UK direct tax regime treats trusts and similar non-UK arrangements as “transparent”. It also analyses the different kinds of “transparency” which may apply in relation to such trusts and arrangements for UK direct tax purposes. The next part of the thesis begins with a more general discussion of what “transparency” may mean in the context of taxation (not just direct taxation) and taking into account the new “transparent entities” provision in Article 1(2) of the OECD Model 2017, and the related OECD Commentary. It concludes that there is no single concept of “transparency” for tax purposes (a conclusion already foreshadowed in the first two chapters) and that it may legitimately mean different things in different contexts. This conclusion paves the way for a detailed analysis of the varying degrees to which “transparency” is a relevant concept in relation to UK taxes which are not taxes on income and gain (notably Inheritance Tax, VAT and Stamp Duty Land Tax). The fourth part of the thesis explores the concepts of tax “transparency” and entity classification as they relate to double tax treaties and EU law. It begins with a survey of the strengths and weaknesses of the new Article 1(2) of the OECD Model 2017. It then goes on to discuss how, from limited beginnings, UK treaty policy has attempted to tackle these issues since the 1980’s in its treaties relating to income and gain. It notes how the UK has been something of a follower, rather than a leader in this regard (see in particular the UK’s last two treaties with the US and the latest UK treaty with France). This section then explores a number of areas where UK double tax treaties still raise problems of entity classification which are not addressed by rules resembling Article 1(2) of the OECD Model 2017 (e.g. some of the issues surrounding the Employment Income Article). Suggestions are made for improvements. The largely unaddressed problems of entity classification and tax “transparency” in the UK’s estate and gift tax treaties are also considered. Lastly this part of the thesis considers the impact of EU law on questions of “entity classification” and “tax transparency”. It concludes that in some respects the UK tax rules for classifying non-UK entities are not compliant with EU law. The fifth part of the thesis compares and contrasts the UK tax rules for classifying entities with the (very different) approach of the US Federal income tax, as well as the Dutch approach (which is more akin to that of the UK). It seeks to pinpoint strengths and weaknesses of both the US and Dutch approach, when compared to the UK. The last part begins by exploring why issues of entity classification and tax “transparency” matter, and not just in relation to the taxation of income and gain. This picks up themes discussed earlier. It then sets out the answers to key research questions. It ends by proposing some more general reforms of the existing UK rules.
Original languageEnglish
Awarding Institution
  • Vrije Universiteit Amsterdam
  • Potgens, FPG, Supervisor
  • Avery Jones, J.F., Co-supervisor, External person
Award date29 Mar 2021
Publication statusPublished - 29 Mar 2021


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