With so much uncertainty surrounding whether we’ll leave the EU with or without a deal, planning for a ‘no deal’ scenario seems sensible right now.
Businesses that buy and sell from the EU should have contingency plans in place which will need to be flexible to cope with a variety of possible outcomes.
If the UK exits the EU without a deal on the 31 October 2019, many UK businesses will need to apply the same processes to EU trade that apply when trading with the rest of the world.
Here are some of the areas you should consider:
EU law and related legislation
– Post-Brexit, EU law will cease to apply in the UK, thus affecting cross border transactions both from and to the UK. It might impact how you sell to the EU and/or how you buy goods or services from the EU to bring them into the UK.
– UK courts will no longer be bound by decisions made by the European Court of Justice, although there is uncertainty over pre-Brexit case law and how UK courts will apply it.
– Currently, withholding tax on payments of dividends, interest and royalties made between a UK company and an EU member state company may be reduced or eliminated either under a double tax treaty (DTT) or under a European directive. However, under a no-deal Brexit, EU directives would no longer apply, hence post Brexit, withholding taxes may be levied. The impact of this would be:
- Outbound payments:
There will be less impact for outgoing payments made from the UK to companies in the EU, as the directives have been implemented into UK law
- Inbound payments:
This is more complex and will largely depend on the terms of the DTT between the UK and the relevant EU jurisdiction.
In a no-deal Brexit scenario, some EU member states may start to deduct tax from the dividend, interest and royalty payments that used to be exempt under the directives.
The amount of tax deducted will depend on the rate set out in the DTT between the UK and the EU member state.
It is important to note, that the UK resident company may be able to apply for a refund of some or all of the amount of tax withheld under the relevant DTT.
From a practical perspective, companies with EU subsidiaries/group companies may be best advised to consider accelerating dividend, interest and royalty payments into the UK prior to Brexit and should take advice on this.
State aid impact
– A number of tax incentivised regimes are restricted by the EU’s state aid rules, including; EMI schemes, EIS and R&D for SMEs. The UK may choose to amend some or all of the regimes. This would require UK legislation changes and it is not proposed that anything will change dramatically.
The general climate of uncertainty, the number of variables involved and the range of possible implications related to Brexit underpin how complicated the current situation is. Operating a business within such complexity is never easy so getting ahead in order to minimise the possible impact of Brexit is key.