On June 23, 2016, the United Kingdom voted to leave the EU. According to the Treaty of Lisbon, the UK is required to provide a two year notice period for the government to implement their decision, which means Britain will actually exit the EU around June 2018. During this time, Britain will be forced to negotiate trade agreements between the other 27 remaining EU states.
What could this mean for multinationals’ tax implications? How will the UK’s exit from the EU affect trade agreements, customs, and tariffs? In this blog, our Orlando international tax attorney discusses the tax implications of Brexit. Continue reading for more information on Brexit.
Multinationals and Taxes
Now that Brexit has passed, some multinational organizations may want to consider moving their headquarters out of Britain to avoid getting hit with higher tax withholdings. While the tax implications are still unclear, many tax experts warn that the only way for businesses to maintain the benefits of the EU would be to shift the company’s headquarters to an EU state. In addition to higher tax withholdings, the absence of the Parent Subsidiary Directive could mean possible double taxation of parent companies on the profits of their subsidiaries.
Currently, transfer pricing rules are required by the EU so that they impact affiliates within borders and cross-borders within the EU. If the UK were to leave the EU, transfer pricing rules would not hold and would likely have to be renegotiated.
Customs and Tariffs
In the two-year period between now and Britain’s exit from the EU, they will have to enter trade negotiations between the EU and World Trade Organization members. Businesses will have to examine how leaving could affect WTO tariffs and what that means for their supply chains and exports. Britain will also have to renegotiate Free Trade Agreements. The government will be forced to look to industries to help set priorities for FTA negotiations.
Currently, the EU has a synchronized Value Added Tax system. With Britain leaving the EU, this could mean the VAT would be replaced or changed. It is not likely that Britain will completely abolish the VAT system as it currently accounts for 22% of the UK’s annual tax revenue. Britain may decide to keep the VAT the same as the EU, but down the line, the EU may change their system. Over time, both could end up with very different systems which could form complexities and added costs for businesses.
For more information regarding how Brexit could affect your multinational company, contact a skilled tax attorney from Castro & Co. Our firm is deeply rooted in international taxation matters and has extensive experience representing clients from around the globe.
Call today to schedule an appointment with our international tax attorneys.