The implications of Brexit are continually coming to the fore and we will examine them as they surface. One of the benefits for a company of being incorporated in the EU is that any number of provisions have been implemented in order to avoid tax obstacles for companies operating across the EU. The Parent Subsidiary Directive is one of the more important, and provides for the elimination of withholding taxes on the payment of dividends between associated companies in the EU. Similarly, the Interest and Royalties Directive eliminates withholding taxes on interest and royalties paid across borders within the EU.
With the arrival of Brexit there is now some uncertainty as to what the position will be going forwards. If those directives were no longer to apply then potentially there could be withholding tax costs on cross border flows between various group companies. This may well be mitigated by existing double tax treaties but this would have to be checked in each instance.
The UK currently does not impose a withholding tax on dividends, and it is possible that it may review the requirement to withhold tax on interest given the low levels of tax collected from this source and the fact that several other European countries do not collect withholding taxes on interest. However, flows in the other direction could still be impacted.
We therefore recommend that companies review the position for their own particular circumstances in order to consider whether further planning might be required. In particular groups with a UK holding company need to study the impact of interest and dividend flows into the UK out of EU subsidiaries. In the event that there is limited treaty relief available, then contingency plans should be looked at in the event that something to replace the Directive is not introduced.
A number of other issues of a similar nature will also require study. These include the following:
Capital Duties Directive: this prohibits the raising of taxes on share issues. This might now be allowed;
Prohibition on State Aid could potentially fall away;
Social security contributions. Currently there is no obligation to make social security contributions in another country. There could be an exposure to paying this in two countries without further planning;
As always tax issues are in a state of flux, but companies would be well advised to at least be aware of the issues and to study ways of mitigating these problems now in the event that existing relief is not continued or substituted.