By Rachael Palmer
To date, companies have quite rightly been focusing their efforts on indirect tax consequences of Brexit; whether that’s additional VAT/customs costs or managing the possibility of delays at ports. Now is the time to start thinking about the direct tax consequences of Brexit.
The starting point is working through the direct tax consequences of any changes being made to the business model as a result of Brexit. If a business’s activities are being moved out of the UK to other European jurisdictions, one of the key direct tax consequences could be an exit charge - the transfer of various assets out of the UK are typically seen as a disposal of those assets for UK tax purposes. As such, any increase in the value of those assets since they were acquired is subject to UK tax at 19%.
Intangible property may move. This could result in a chargeable gain as above or an adjustment under the special intangibles regime and may have a value-chain and transfer pricing impact. It may also have an impact on intercompany flows as the recipient of royalty payments could change. It will be important to understand whether any withholding tax (WHT) will arise on any of these new flows.
This is where scenario-planning could be important. Whilst the majority of UK tax law is embedded in domestic legislation there are a few areas which are governed by EU Directives. It is important to consider the consequences if these various Directives are no longer in place, although this will only be determined when the Brexit deal is final and any transitional arrangements agreed.
