Just over a month has now passed since the referendum in which the United Kingdom voted narrowly to leave the European Union: an event which some have characterized as the greatest potential shock to the UK economy since the Second World War. For most multinational groups considering the potential consequences of Brexit on their tax position, however, the best advice is probably the same as that provided by the famous wartime poster: "Keep Calm and Carry On."
While much remains to be resolved about the United Kingdom's exit from the European Union, what has become clear is that it will not happen quickly. The Government has stated that it will not serve formal notice of its intention to leave the European Union before the New Year, which will start a period of negotiation that, under the European Union Treaty, is anticipated to take two years. The United Kingdom is thus likely to remain an EU member state until at least 2019.
Brexit will almost certainly result in some changes to the United Kingdom's tax landscape, and these may well cause complications for some multinationals. However, the UK Government is keen to show that the United Kingdom is still "open for business" post-Brexit, and has suggested that it may cut corporation tax still further to maintain the United Kingdom's attractiveness as a destination for inward investment.
For most groups, it makes little sense to restructure until the longer-term shape of the UK's post-Brexit tax system becomes clear; for now, they should be aware of what might change as a result of Brexit, and what will probably not.
The Interest and Royalties and Parent-Subsidiary Directives
In general, income taxes are a matter for member states rather than the European Union, which can only legislate in the field of tax with the unanimous consent of all 28 member states. In the corporate tax field, the European Union's most important interventions are the Interest and Royalties and the Parent-Subsidiary Directive, which eliminate withholding taxes between related parties that are resident in different member states.
The Interest and Royalties Directive removes withholding taxes on interest and royalties paid by a company in an EU member state to a company in another EU member state where one has a direct 25 percent shareholding in another, or a third EU company has a direct 25 percent shareholding in both. The Parent-Subsidiary Directive removes withholding taxes on dividends paid by a company in one EU...