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Consider how the new UK-EU trade deal might impact your approach to...
The payment of dividends, interest or royalties from the EU to the UK may now carry a withholding tax burden. This could be a real cost where the applicable treaty rate is not zero, and the tax is not available for credit against UK taxes. The expectation is that the UK is unlikely to levy witholding taxes on outbound payments out of the UK, but the impact of inbound payments to the UK from entities in the EU should be considered.
UK companies may now break EU tax grouping relationships or consolidations. This may lead to possible clawback of previously claimed reliefs, and an inability to claim reliefs in the future.
The new agreement results in limited direct changes to corporate and direct taxation, but there some specific changes to consider the impact of, including:
- Changes to the UK’s implementation of the EU’s “DAC 6” Mandatory Disclosure rules and a move towards replacing these with the OECD’s Mandatory Disclosure Rules.
- The UK and EU have agreed to continue their support for the OECD BEPS initiative, so we should expect the UK to continue to implement changes proposed by the OECD.
- The agreement now ends the EU State Aid regime in Great Britain, subject to certain conditions in the agreement, offering the UK more flexibility in setting future tax legislation looking forwards.
Transfer pricing and exit charges
Reorganisations to internal supply chain, financing flows, incorporation of new entities for regulatory, customs or other commercial reasons may change the location of significant people functions, risks and assets. If value has moved or will move out of the UK there is a risk of an immediate and potentially significant corporate tax charge.
As the full impacts of the deal on the economy and sterling work through, businesses should consider whether their tax teams are fully aware of positions treasury teams are taking and that UK corporation tax risks are being managed accordingly.
Things you need to consider going forwards
Review your tax position
You can assess the group structure to gauge the withholding tax position and identify any claims or further work required. At the same time, review group structures and tax consolidations for potential impact. Groups should also consider the impact of any recent or future reorganisations in response to Brexit.
Prepare a value chain analysis and review the below factors with a view to understanding the potential transfer pricing implications:
– activities to ensure compliance
– locations of key people functions
– intangibles for new location of development, enhancement, maintenance, protection and exploitation.
Explore deal prospects
The new UK-EU relationship may create opportunities for those wishing to enter or exit new markets.
“There is continuing uncertainty and international tax compliance is vast and complicated. We can help businesses make sense of their tax position and ensure they’re ready for the new status quo.”
Wendy Nicholls, Partner
Our work with clients
Over the last three years we’ve worked with organisations of many sizes and sectors to help them prepare for political volatility.
Establishing a regulatory presence in Europe
Regulatory risk resulted in a Fin-Tech organisation needing to establish a presence in Europe. We worked alongside national regulators to establish what substance requirements were required as part of a continuity planning exercise. Once agreed our teams (across transfer pricing, VAT and corporate tax) supported the implementation ensuring a smooth transition for the client and their customers.
There's no one size fits all approach to Brexit. Speak to one of our experts for a response tailored to you.