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58 PROPERTY
UNTANGLING
Commission and the European Courts of Justice have resulted in
significant changes to direct taxes in recent years.
EUROPE’S REAL
The treaty’s fundamental freedoms mean that member states must
remove any discriminatory tax provisions. The European Court of
Justice has been the major mover in this area, presiding over more
than 100 direct tax cases, the majority of which have been decided in
ESTATE TAX WEB
favour of the taxpayer. Nonetheless, to date member states have
tended to be reactive to change. So the tide is turning, creating a
more compelling argument for an overhaul of the European Real
Estate tax system. In fact, the European Commission intends to
Investing in real estate in continental Europe looks
propose the Common Consolidated Corporate Tax Base (CCCTB)
attractive thanks to lower interest rates and better directive later this year.
margins. But tax problems abound for the unwary,
according to Gary Hutton
The rationale behind the CCCTB is to provide a consolidated tax base
from which businesses could operate right across the European Union.
Increasing numbers of investors are looking across the Channel for
Should the Directive progress as intended, a company in a member
better returns but in reality, apparent opportunities abroad are belied
state would not need to grope blindly around the different tax regimes
by unwieldy tax and legal systems, where local laws and procedures
in all the countries of the European Community in which it conducts
hinder investment, particularly for mid-tier and small businesses with
business. Instead, the CCCTB would provide a consistent formula
relatively small portfolios.
against which a company’s profits would be calculated. Once
determined, it is proposed that the profits would be allocated to the
This is becoming a real issue. Our Real Estate and Construction team is
relevant countries where a company conducts its business, and taxed
seeing increased demand from both existing and new clients for
in those countries using their tax rates.
expertise among mid-tier and small businesses to guide them through
the labyrinth of European systems. For the calendar year 2007, the
With the continuing work of the European Court of Justice and the
team was involved in transactions with a collective value of over £1.9
European Commission it is difficult to see how the European member
billion, highlighting how fundamental the European real estate and
states can continue to operate in their existing reactive mode.
construction sectors are to the economy in the South of England.
If these issues are successfully addressed as a whole, we could
Should businesses fall foul of the numerous laws, the attendant costs in
achieve the Holy Grail; a flexible, liquid and open European
terms of penalties can be crippling. Furthermore, to negotiate the
commercial real estate market that allows for growth, one where
maze of bureaucracy requires a significant time commitment. For UK
businesses south east England could begin to see investment
investors with smaller property portfolios it all adds up to a prohibitively
successes in line with interest rates and margins available
steep and costly learning curve and they are therefore unable to take
across Europe.
full advantage of the foreign opportunity.
Source: Gary Hutton, Head of the Real Estate and Construction
All of which shows how much the region stands to gain from a
team at BDO Stoy Hayward’s Gatwick office. www.bdo.co.uk
simplified European tax system and here are a handful of ways I
believe that could be done.
• Alignment of the transaction taxes that are applied on the
acquisition of commercial real estate. For example, registration
taxes, stamp duties and stamp duty land taxes
• Alignment of the taxation of rental income received from corporate
occupiers of European commercial real estate
• Simplifying the taxation of capital gains arising on the disposal of real
estate by non-resident investors
• Harmonising the tax depreciation available to real estate investors to
recognise the need to provide tax relief for capital expenditure
against their rental income
• Simplifying the relief for financing costs incurred by investors against
their taxable rental income including thin capitalisation/earnings
stripping legislation
• An optional Pan-European REIT regime existing alongside the existing
REIT regimes recently introduced, including France, the United
Kingdom and Germany
At present, the treaty establishing the European Community contains
no express powers regarding the harmonisation of direct taxes within
the European Union. However, the activities of the European
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