The European Commission has made exactly the same point regarding Section 13 Taxation of Chargeable Gains Act 1992, under which capital gains made by a non-resident company may be taxed directly (and proportionately) on any UK resident who has more than 10% of the foreign company.  

In case anybody thinks it is a bit tough to have to pay tax on gains made by an offshore company which you do not control and may not be able to get your hands on the gain anyway, it should be remembered that this is intended to be a draconian anti-avoidance provision. In any event, there is a statutory right of reimbursement from the company so that the UK resident need not be out of pocket.

Until 6 April 2008 Section 13 did not apply at all to foreign domiciled individuals, but since that date, where the shareholder is a UK resident but foreign domiciled individual, any gains made by the company can now be attributed to him or her under Section 13. However, foreign domiciled individuals are able to benefit from the remittance basis, but that of course only protects foreign gains; any gains made by the offshore company on UK assets are fully chargeable whatever the domicile of the shareholder.

The European Commission again say that the provisions are wholly discriminatory as they apply only to nonresident companies and not to UK resident companies. They have formally requested the UK to amend the legislation to eliminate the unlawful discrimination.

It is interesting that the press release from the European Commission makes reference only to the attribution of the foreign companies’ gains to companies which are resident in the UK. In fact Section 13 applies much more widely and certainly applies to individuals as well.