THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Human Capital Taxes
May 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question
specifies otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots Law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future
years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and
the reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, candidates answering by reference to more recently
enacted legislation or tax cases will not be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Hoora BV is a Dutch limited company, which manufactures hearing equipment in the
Netherlands. It has recently purchased all of the shares of a UK company, Plasio Ltd, for £2.2
million. After the purchase of Plasio Ltd, Hoora BV is worth €38 million. It has fixed assets of
€20.2 million and current assets of €500,000. Hoora BV employs 233 full-time staff and does not
have any other subsidiaries.
Plasio Ltd was incorporated in the UK in 2018 and prior to its purchase by Hoora BV, it had two
equal and otherwise unrelated shareholders: John Red and David Yellow. The company makes
specialist hearing aids using 3D printing technology. It employs 12 full-time staff and three part-
time staff, who each work for 25 hours per week. Hoora BV plans to continue to operate the
company in the same way and accordingly all staff have been retained on the same terms. John
and David are still directors and continue to work full-time as General Manager and Head of
Design respectively.
Hoora BV plans to introduce a Dutch tax approved share scheme for six key employees, including
John and David as they feel it is important to retain these two individuals. There are two
possibilities under Dutch law:
1) The first scheme allows the company to award an employee free ordinary shares up to a
set limit with no Dutch tax or social security due at the time of the award. If the employee
leaves the company, the shares are forfeited and there are restrictions on the shares such
that the employee cannot sell or otherwise dispose of them apart from in the circumstances
described below:
(a) If the company is bought out within five years, the employee can either sell their
shares to the purchaser or exchange their shares for shares in the purchasing
company.
(b) If Hoora BV floats on the stock market within five years, the employee will exchange
their shares for shares in the new public limited company.
(c) If Hoora BV is not purchased by a third party and does not undergo a flotation within
the five-year period, the employee can sell the shares back to the company at their
current market value or retain them in anticipation of a future purchase or flotation.
2) The second possible scheme is a share option scheme. Hoora BV could award options up
to a set limit. The number of options would have to be calculated, but the value would be
based on the current market value of Hoora BV shares. The options would vest after five
years, although if the company is bought or floats on the stock exchange before then, the
employees can exercise their options at that time. There are no Dutch tax charges on grant,
vesting or exercise, only on the sale of the shares acquired.
The monetary value received by the employees would be expected to be similar under either
scheme, perhaps in the region of €280,000 each.
In the Netherlands, any sale or deemed disposal under either scheme, would incur a Capital
Gains Tax charge at 20% on the total current value but the gain can be deferred if there is an
exchange of shares. As the shares are in a Dutch company, John and David would also be liable
to this Dutch Capital Gains Tax charge under domestic Dutch law.
Requirement:
Explain how the Dutch share schemes will be treated in the UK suggesting any
amendments or alternatives which could improve the position. (20)
An exchange rate of €1.16 to £1 should be used.
An extract from the UK/Netherlands Double Tax Treaty is provided.
Continued
Page 2 of 10 AT HCT
,1. Continuation
UK Netherlands Double Tax Treaty 2008
Article 13 Capital Gains
1. Gains derived by a resident of a Contracting State from the alienation of immovable
property referred to in Article 6 of this Convention and situated in the other Contracting
State may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State, including such gains from the alienation of such a permanent
establishment (alone or with the whole enterprise) may be taxed in that other State.
3. Gains derived by a resident of a Contracting State from the alienation of ships or aircraft
operated in international traffic or movable property pertaining to the operation of such
ships or aircraft, shall be taxable only in that State.
4. Gains derived by a resident of a Contracting State from the alienation of shares, other than
shares which are traded on a recognised stock exchange, or other comparable interests
deriving more than 75 per cent of their value directly or indirectly from immovable property
situated in the other Contracting State, other than immovable property in which that
company or the holders of those interests carry on their business, may be taxed in that
other Contracting State. However, such gains shall be taxable only in the first-mentioned
State where:
a) the resident owned less than 50 per cent of the shares or other comparable interests
prior to the first alienation;
b) the gains are derived in the course of a corporate reorganisation, amalgamation,
division or similar transaction; or
c) the resident is a pension scheme, provided that the gains are not derived from the
carrying on of a business, directly or indirectly, by that pension scheme.
5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3
and 4 of this Article, shall be taxable only in the Contracting State of which the alienator is
a resident.
6. Notwithstanding the provisions of paragraph 5 of this Article, a Contracting State may, in
accordance with its laws, levy tax on gains derived by an individual who is a resident of
the other Contracting State from the alienation or deemed alienation of shares or other
rights in a company which, under the laws of the first-mentioned Contracting State, is a
resident of that State, and from the alienation or deemed alienation of part of the rights
attached to the said shares or other rights, if that individual, either alone or with other
connected individuals according to the laws of that State, directly or indirectly holds at least
20 per cent of the issued capital of a particular class of shares in that company. This
provision shall apply only if the individual who derives the gains has been a resident of the
first-mentioned State at any time during the ten year period preceding the year in which
the gains are derived and provided that, at the time he became a resident of the other
Contracting State, the above-mentioned conditions regarding ownership in the said
company were satisfied.
In cases where, under the laws of the first-mentioned State, an assessment has been
issued to the individual in respect of the above-mentioned alienation deemed to have taken
place at the time of his emigration from the first-mentioned State, the provisions of this
paragraph shall apply only insofar as part of the assessment is still outstanding.
7. The provisions of paragraph 5 shall not affect the right of a Contracting State to levy
according to its law a tax chargeable in respect of gains from the alienation of any property
on a person who is, and has been at any time during the previous six fiscal years, a resident
of that Contracting State or on a person who is a resident of that Contracting State at any
time during the fiscal year in which the property is alienated.
End of Question
Page 3 of 10 AT HCT
, 2. Plus Tard SARL is one of Europe’s leading developers of nuclear power plants and has a branch
in the UK (Plus Tard UK).
Plus Tard SARL has contracted with a UK utility company to build a new power plant for them at
a cost of £50 million, in the North East of England, on land already owned by the utility company.
The work involved will include site clearance and levelling, assembly of pre-fabricated units and
systems installation (including electrics, water and sewage). The work will be carried out by the
UK branch.
Due to a skills shortage and competing projects, Plus Tard UK needs to supplement its local UK
employed workforce with UK agency workers to work as labourers. It also intends to bring
additional workers to the UK from Romania who would come to the UK for a 200 day period,
which falls in a single UK tax year. These workers will remain Romanian resident under domestic
law and their families and main home would remain in Romania. They have previously worked
for Plus Tard SARL on similar projects across Europe and have consequently built up knowledge
of Plus Tard SARL’s system and ways of working. Notwithstanding this, they will:
1) Work under the supervision, direction and control of Plus Tard UK employees.
2) Be paid on a day rate basis.
3) Not be required to remedy any mistakes in their own time.
4) Have no right of substitution and no right to refuse work.
Plus Tard SARL believes these individuals hold a special “freelance” tax status in Romania.
Finally, Plus Tard SARL will be engaging with a UK company, Briggs Plant Hire Ltd, for the hire
of plant including scaffolding, bulldozers, boring machines and cranes together with associated
labour.
Requirement:
Explain the UK tax implications for Plus Tard UK of the contract with the utility company.
You are NOT required to comment on Corporation Tax, VAT or social security. Extracts
from the UK/Romania Double Tax Treaty are provided. (20)
Continued
Page 4 of 10 AT HCT
ADVANCED TECHNICAL
Human Capital Taxes
May 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question
specifies otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots Law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Except as set out below or indicated by additional information in the question, you may assume that
2020/21 legislation (including rates and allowances) continues to apply for 2021/22 and future
years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans and
the reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, candidates answering by reference to more recently
enacted legislation or tax cases will not be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Hoora BV is a Dutch limited company, which manufactures hearing equipment in the
Netherlands. It has recently purchased all of the shares of a UK company, Plasio Ltd, for £2.2
million. After the purchase of Plasio Ltd, Hoora BV is worth €38 million. It has fixed assets of
€20.2 million and current assets of €500,000. Hoora BV employs 233 full-time staff and does not
have any other subsidiaries.
Plasio Ltd was incorporated in the UK in 2018 and prior to its purchase by Hoora BV, it had two
equal and otherwise unrelated shareholders: John Red and David Yellow. The company makes
specialist hearing aids using 3D printing technology. It employs 12 full-time staff and three part-
time staff, who each work for 25 hours per week. Hoora BV plans to continue to operate the
company in the same way and accordingly all staff have been retained on the same terms. John
and David are still directors and continue to work full-time as General Manager and Head of
Design respectively.
Hoora BV plans to introduce a Dutch tax approved share scheme for six key employees, including
John and David as they feel it is important to retain these two individuals. There are two
possibilities under Dutch law:
1) The first scheme allows the company to award an employee free ordinary shares up to a
set limit with no Dutch tax or social security due at the time of the award. If the employee
leaves the company, the shares are forfeited and there are restrictions on the shares such
that the employee cannot sell or otherwise dispose of them apart from in the circumstances
described below:
(a) If the company is bought out within five years, the employee can either sell their
shares to the purchaser or exchange their shares for shares in the purchasing
company.
(b) If Hoora BV floats on the stock market within five years, the employee will exchange
their shares for shares in the new public limited company.
(c) If Hoora BV is not purchased by a third party and does not undergo a flotation within
the five-year period, the employee can sell the shares back to the company at their
current market value or retain them in anticipation of a future purchase or flotation.
2) The second possible scheme is a share option scheme. Hoora BV could award options up
to a set limit. The number of options would have to be calculated, but the value would be
based on the current market value of Hoora BV shares. The options would vest after five
years, although if the company is bought or floats on the stock exchange before then, the
employees can exercise their options at that time. There are no Dutch tax charges on grant,
vesting or exercise, only on the sale of the shares acquired.
The monetary value received by the employees would be expected to be similar under either
scheme, perhaps in the region of €280,000 each.
In the Netherlands, any sale or deemed disposal under either scheme, would incur a Capital
Gains Tax charge at 20% on the total current value but the gain can be deferred if there is an
exchange of shares. As the shares are in a Dutch company, John and David would also be liable
to this Dutch Capital Gains Tax charge under domestic Dutch law.
Requirement:
Explain how the Dutch share schemes will be treated in the UK suggesting any
amendments or alternatives which could improve the position. (20)
An exchange rate of €1.16 to £1 should be used.
An extract from the UK/Netherlands Double Tax Treaty is provided.
Continued
Page 2 of 10 AT HCT
,1. Continuation
UK Netherlands Double Tax Treaty 2008
Article 13 Capital Gains
1. Gains derived by a resident of a Contracting State from the alienation of immovable
property referred to in Article 6 of this Convention and situated in the other Contracting
State may be taxed in that other State.
2. Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State, including such gains from the alienation of such a permanent
establishment (alone or with the whole enterprise) may be taxed in that other State.
3. Gains derived by a resident of a Contracting State from the alienation of ships or aircraft
operated in international traffic or movable property pertaining to the operation of such
ships or aircraft, shall be taxable only in that State.
4. Gains derived by a resident of a Contracting State from the alienation of shares, other than
shares which are traded on a recognised stock exchange, or other comparable interests
deriving more than 75 per cent of their value directly or indirectly from immovable property
situated in the other Contracting State, other than immovable property in which that
company or the holders of those interests carry on their business, may be taxed in that
other Contracting State. However, such gains shall be taxable only in the first-mentioned
State where:
a) the resident owned less than 50 per cent of the shares or other comparable interests
prior to the first alienation;
b) the gains are derived in the course of a corporate reorganisation, amalgamation,
division or similar transaction; or
c) the resident is a pension scheme, provided that the gains are not derived from the
carrying on of a business, directly or indirectly, by that pension scheme.
5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3
and 4 of this Article, shall be taxable only in the Contracting State of which the alienator is
a resident.
6. Notwithstanding the provisions of paragraph 5 of this Article, a Contracting State may, in
accordance with its laws, levy tax on gains derived by an individual who is a resident of
the other Contracting State from the alienation or deemed alienation of shares or other
rights in a company which, under the laws of the first-mentioned Contracting State, is a
resident of that State, and from the alienation or deemed alienation of part of the rights
attached to the said shares or other rights, if that individual, either alone or with other
connected individuals according to the laws of that State, directly or indirectly holds at least
20 per cent of the issued capital of a particular class of shares in that company. This
provision shall apply only if the individual who derives the gains has been a resident of the
first-mentioned State at any time during the ten year period preceding the year in which
the gains are derived and provided that, at the time he became a resident of the other
Contracting State, the above-mentioned conditions regarding ownership in the said
company were satisfied.
In cases where, under the laws of the first-mentioned State, an assessment has been
issued to the individual in respect of the above-mentioned alienation deemed to have taken
place at the time of his emigration from the first-mentioned State, the provisions of this
paragraph shall apply only insofar as part of the assessment is still outstanding.
7. The provisions of paragraph 5 shall not affect the right of a Contracting State to levy
according to its law a tax chargeable in respect of gains from the alienation of any property
on a person who is, and has been at any time during the previous six fiscal years, a resident
of that Contracting State or on a person who is a resident of that Contracting State at any
time during the fiscal year in which the property is alienated.
End of Question
Page 3 of 10 AT HCT
, 2. Plus Tard SARL is one of Europe’s leading developers of nuclear power plants and has a branch
in the UK (Plus Tard UK).
Plus Tard SARL has contracted with a UK utility company to build a new power plant for them at
a cost of £50 million, in the North East of England, on land already owned by the utility company.
The work involved will include site clearance and levelling, assembly of pre-fabricated units and
systems installation (including electrics, water and sewage). The work will be carried out by the
UK branch.
Due to a skills shortage and competing projects, Plus Tard UK needs to supplement its local UK
employed workforce with UK agency workers to work as labourers. It also intends to bring
additional workers to the UK from Romania who would come to the UK for a 200 day period,
which falls in a single UK tax year. These workers will remain Romanian resident under domestic
law and their families and main home would remain in Romania. They have previously worked
for Plus Tard SARL on similar projects across Europe and have consequently built up knowledge
of Plus Tard SARL’s system and ways of working. Notwithstanding this, they will:
1) Work under the supervision, direction and control of Plus Tard UK employees.
2) Be paid on a day rate basis.
3) Not be required to remedy any mistakes in their own time.
4) Have no right of substitution and no right to refuse work.
Plus Tard SARL believes these individuals hold a special “freelance” tax status in Romania.
Finally, Plus Tard SARL will be engaging with a UK company, Briggs Plant Hire Ltd, for the hire
of plant including scaffolding, bulldozers, boring machines and cranes together with associated
labour.
Requirement:
Explain the UK tax implications for Plus Tard UK of the contract with the utility company.
You are NOT required to comment on Corporation Tax, VAT or social security. Extracts
from the UK/Romania Double Tax Treaty are provided. (20)
Continued
Page 4 of 10 AT HCT
