Following the referendum of June 23, 2016, in which Britons voted to leave the European Union, the value of the British pound plummeted, mobilizing the attention of the international business community.
So it’s understandable that businesses have had little spare energy to devote to longer-term preparations for a potentially dramatic change in the U.K.’s legal and tax relationship with its continental neighbors—particularly given the uncertainty about the terms under which Britain will ultimately leave the EU.
Nonetheless, businesses should begin thinking about Brexit planning now, because, “it always takes longer than anyone anticipates to change the way a business is set up,” said Charles Goddard, a tax partner with Rosetta Tax LLP, London, who writes for the Bloomberg BNA Tax Management International Forum.
Imports and Exports
A key area of uncertainty relates to the treatment of imports and exports, Goddard said.
“U.K. exporters may face tariffs on exports to the EU. Businesses that have the flexibility to do so may move their operations into the EU from the U.K. so that when they transfer goods into various EU Member States, there is less of a tariff burden. For example, in the case of a whiskey manufacturer in Northern Ireland, it might make sense for it to move some of its production to the Republic of Ireland to satisfy its export markets.”
In the case of imports, multinational companies might have to reconsider their supply and production chains, which often involve processing centres throughout the EU.
It might be more tax efficient to import goods into the U.K. from elsewhere in the EU at an earlier stage of processing, to avoid unnecessary tariffs on higher value goods.
Such structural shifts would raise a number of other tax issues, including a change in corporate tax rate and compliance requirements, as well as transfer pricing concerns.
European groups that have taken advantage of the U.K.’s favorable holding company regime should also be aware that they will no longer be able to rely on EU rules which mandate exemptions from withholding tax on interest, dividends and royalties. U.K.-parented groups will have to review the U.K.’s treaties with the EU Member States in which their subsidiaries are resident to ascertain whether—and under what conditions—exemptions continue to apply.
Whether the U.K. will remain a favorable holding company jurisdiction depends on a number of factors, including its corporate tax rate and other non-tax factors.
VAT Mini One Stop Shop for Electronically Supplied Services
Brexit also has implications for the “mini one stop shop” (MOSS) regime, a simplified method of reporting on electronically supplied services, such as digital content, to end consumer. The MOSS permits suppliers to account for electronically supplied services delivered across the EU via a single web portal in the supplier’s Member State of identification.
Suppliers of electronically supplied services that are registered in the U.K. for the MOSS may be required to re-register in another Member State to continue to take advantage of the regime following Britain’s separation from the EU.
What’s a PLC To Do?
So what should businesses be doing at this point?
For now, according to Goddard, they should focus on information gathering and initial analysis—which is no small task for a large multinational.
“Businesses needs to understand on a granular basis the tax reliefs they are reliant on and the tax levels that they pay—which is not just the tax line in the accounts, but all the taxes imposed at each stage of their businesses. They also need to understand the impact of Brexit on their suppliers and customers. They want to be talking to their major suppliers and their customers to see what they are thinking, so that they can all adjust to Brexit in a smooth and controlled way.”
By Joanna Norland, Technical Editor, Bloomberg BNA
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