On hold. It is clearly too early to know what will be the tax-related consequences of the United Kingdom’s departure from the European Union, as voted by referendum on 23 June, since such will ultimately depend on the terms negotiated for such departure and the new arrangements that will govern the UK’s relationship with the EU and its Member States. In any case, the truth is that this new situation will allow the UK to reassume full sovereign powers over tax matters, a fact that could result in substantial changes in respect of the current situation. Below follows a list of some of the areas that could be uniquely affected by this new scenario, notwithstanding that any assertions made in this paper are conditioned by the negotiations and agreements reached in a future that, though near, will not be imminent.

VAT. With regard to indirect taxation, particularly the Value Added Tax, it seems unlikely that the UK will introduce relevant changes in the short term, due to the excessive cost UK companies could incur and the risks of double taxation or double non-taxation resulting from a significant divergence between the regulation of the tax in EU territory and in the UK. Moreover, the abandonment of the EU Customs Union adds another source of uncertainty to the new scenario, uncertainty that may very well dissipate if the UK joins the European Free Trade Association, joins the European Economic Area, or signs its own free trade agreements, managing, in any event, to eliminate or significantly reduce taxation in this field.

Direct taxation. Intra-group profit distributions. As regards direct taxation, the impact Brexit may have on the various initiatives that have been taken, in pursuance of the main freedoms guaranteed by the single market within the EU, must be assessed. Noteworthy in this regard is the Parent-Subsidiary Directive, which aims to simplify, for groups of companies operating in different Member States, intra-group profit distributions within the EU, preventing double taxation and eliminating the taxation at source of dividend payments, as well as Directive 2003/49/EEC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, which ensures non-taxation at source of royalty or interest payments between companies in the same group within the EU.

These Directives, together with the internal rules adopted for their implementation, will no longer apply to the UK, so the question arises as to what might be the upshot for company groups that have a presence in the UK. Given the inapplicability of the aforementioned Directives, first of all the double taxation conventions in force and, later, the agreements that the UK may reach with the EU or its Member States on these issues, will be decisive.

From that perspective, the double taxation conventions in force will in many cases mitigate the effects of the withholding tax on dividends distributed by subsidiaries resident in EU countries to their UK parent company, although in other cases such effects will not be eliminated, a case in point being the dividends of German, Italian and Greek subsidiaries, or the interest and royalties paid by Italian and Portuguese subsidiaries. This could cause multinationals to take drastic decisions, such as to move the seat of their parent company where domiciled in the UK.

As regards Spain, in the case of Spanish subsidiaries distributing dividends to a parent company domiciled in the UK, the Convention between the UK and Spain for the avoidance of double taxation will apply, which, in respect of profit distributions between these countries, provides for rates ranging between 15% and 0%, bearing in mind that the requirements for such distributions to be tax-exempt are not very different from those laid down in the Parent-Subsidiary Directive.

Conversely, if the profits are distributed from a UK subsidiary to a Spanish parent company, the situation would not differ from the current one, since UK legislation does not provide for withholdings at source, regardless of the recipient State of the distributed dividends.

ATAD. The effect that Brexit may have on other EU initiatives geared towards greater harmonisation of direct taxation, with the primary objective of combating tax fraud, should be taken into account. In this regard, the Anti Tax Avoidance Directive will no longer apply to the UK, although it is not likely that the latter will steer far from the directive’s content given, among other things, the country’s commitment to similar proposals within the framework of the OECD, such as the BEPS Action Plan.

Moreover, it is certain that with its departure from the EU, the UK will be far removed from a major project as is the establishment of a Common Consolidated Corporate Tax Base (CCCTB), rejected by the UK in the past, even if implementation in the short term seems far-fetched.

Mergers. Aside from the above, another important outcome of the new situation is related to the Merger Directive, designed to remove fiscal obstacles to cross-border reorganisations of companies. Tax liabilities for such reorganisations should no longer be ruled out where UK organisations are involved.

Stamp duty. Similarly, one cannot rule out the possibility that, after leaving the EU, the UK reinstates the 1.5% Stamp Duty rate (levied on share transfers) that had been reduced to satisfy EU requirements, in particular those d e ri ving f rom Di r e c ti ve 2008 /7 /EC o f 12 February 2008 concerning indirect taxes on the raising of capital.

The foregoing are undoubtedly some of the areas where Brexit will have ramifications, although the precise impact of the same will depend, as noted above, on future tax decisions adopted in the UK and which, in turn, will be largely determined by the departure terms ultimately agreed with the EU.