The international tax landscape is changing fast. And Brexit is another complicating factor. There may be significant tax consequences for multinationals. Some of the consequences may be mitigated by changes to law but the post-Brexit tax landscape is just not clear right now.
In an Irish context, there are three key questions that every international company can ask themselves.
1. Will Brexit impact our holding company structure?
Do you need an EU holding company? The EU Parent Subsidiary Directive will no longer apply to payments to and from the UK. This may mean an increase in withholding taxes on dividends. In an Irish context, dividends to the UK will remain exempt from withholding tax under our domestic law.
Going forward UK companies will be regarded as third country companies for the purpose of EU tax directives. So the UK may be impacted by EU hybrid provisions, Controlled Foreign Corporation (“CFC”) rules or EU withholding taxes.
Furthermore non-UK taxpayers relying on UK owners to satisfy the derivative benefits provision under a US treaty may lose their entitlement to claim US treaty relief.
These factors may all be relevant in deciding whether your existing holding company structure is robust enough to survive Brexit.
2. Will Brexit impact our operational structure?
Operationally it may make sense for international companies to have a single contractual nexus between the EU and the UK. That nexus could be through Ireland.
Brexit is likely to significantly increase the administrative complexity of UK / EU trade – including trade with Ireland – particularly around customs and VAT matters. To ease this complexity an EU based hub may make sense. As well as continued administrative simplicity on VAT matters Ireland offers the added benefit of a 12.5% tax rate on trading profits.
Also the Interest and Royalties Directive will no longer apply to payments to and from the UK. It should be confirmed whether the relevant UK treaty would offer adequate protection against withholding taxes. In an Irish context interest and royalties paid to the UK should remain exempt from withholding taxes.
These factors may be relevant in deciding whether your existing operational structure is flexible enough to survive Brexit.
3. Will Brexit impact prior or future restructurings or tax reliefs?
Over the years tax domestic tax legislation in Ireland (and other EU countries) has been amended to ensure compliance with the EU Fundamental Freedoms. For example group relationships can be traced through companies resident in EU Member States. Where a UK company is part of the group you may now need to consider the availability of such reliefs in the future.
But also restructurings carried out over the last ten years will have to be reviewed to ensure there is no de-grouping charge as a result of the UK no longer being an EU Member State.
Now is the time to identify potential areas of concern and give yourself lots of time to plan and implement any changes required.