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Changes to Tax

Following the EU referendum result on 24 June 2016, we assess below the impact and likely impact on taxes and tax policies within the UK.

Whilst we are likely to see changes over the coming years, there will be no immediate impact on UK taxes and tax policy. We will of course update this page as soon as announcements are made.

 

Likely Changes

As the UK leaves the EU, Parliament may be tempted to continue with the business friendly EU regulations – though this may depend on the impact of the UK economy. In addition, the UK would still be subject to other international influences after leaving the EU such as the Organisation for Economic Co-Operation and Developments and Base Erosion Profit Shifting.

The areas of tax most likely to feel the impact of the referendum are the so called indirect takes such as VAT and customs duties. We discuss the predominant areas of concern in relation to both indirect and direct taxes below.

 

Indirect Taxes

The UK implemented the VAT Directives when it joined the European Economic Community in 1973 after negotiating important detractions such as the zero rates applied to certain goods. As you may or may not be aware, VAT was introduced as a uniform tax system to promote competition and trade within the EU. It may be Parliament decides UK would be more attractive for businesses to update our VAT regime.

Similarly, excise duties (importantly) govern tobacco, alcohol and energy. Again, it is likely Parliament feel that the minimum duties imposed on members states is not in the UK’s best interests to continue with.

 

Direct Taxes

Direct taxes have tended to be free from EU influence. However, the following EU legislation does impact directly on taxes within the UK:

  • the Merger Directive 2005/56/EC;
  • the Parent-Subsidiary Directive 2003/123/EC;
  • the Interest and Royalties Directive 2003/49/EC; and
  • the state aid regime.

 

The Merger Directive 2005/56/EC impacts businesses within the UK and applies to mergers, divisions, transfers of assets and exchanges of shares that take place between companies in different member states. The Parent-Subsidiary Directive 2003/123/EC provides exemptions for profit distributions amongst associated companies (again, in different member states). The Interest and Royalties Directive 2003/49/EC blocks companies withholding taxes on royalty and interest payments. Finally, the state aid regime prohibits member states from granting state aid to business, which can include beneficial tax regimes. The purpose of the state aid regime is to prevent a distortion of competition.

It may be each of these directives are reviewed over the coming years.

 

For more information on the tax implications of Brexit – contact us on 0161 926 9969 or by emailing us at hello@mlplaw.co.uk

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