Thursday, 18 August 2016

Direct and indirect tax implications of Brexit

In an historic referendum held on 23 June 2016, the UK electorate voted for the country to leave the EU. The vote, however, will have little, if any, immediate impact on direct or indirect taxes. The UK remains an EU member state, and EU laws and treaty obligations will continue to have effect, until a secession agreement is concluded with the EU. Under article 50 of the Consolidated Treaty on the European Union, the UK is required to officially notify the European Council of its decision to leave the EU. The UK then has two years to negotiate the secession agreement, although this period can be extended with the unanimous agreement of the other 27 member states. During this time, EU laws, treaty obligations and access to the Court of Justice of the European Union (CJEU) will continue to have effect. The former prime minister announced that the timing for triggering the secession negotiations will be a matter for his successor (a new prime minister was appointed on 13 July 2016). Few changes are likely to occur while the secession negotiations take place, and the scope of future tax changes would be determined by the outcome of those negotiations. Following secession, it is possible that the UK’s approach to taxation could diverge from the current position, since future governments could have more freedom of choice. Some of the possible models for post-EU arrangements would include continued adherence to the EU’s direct tax obligations. Some indirect taxes (principally VAT and customs duties) are EU taxes. The UK would need to introduce its own customs duty system, although some models would allow the UK to remain in the customs union with the EU/European Economic Area (EEA) member states. VAT already is a part of UK law and would continue without the EU VAT directive, subject to future changes and new legislation for some minor points. Even without EU legal constraints, the UK is unlikely to develop wholly new tax systems. The EU direct tax restrictions are relatively minor and the focus on a territorial system of corporate tax is a model adopted by many other countries. Similarly, there is a worldwide focus on VAT systems, and many emerging economies are introducing VAT. In that context, it would be surprising if future UK governments were to make fundamental system-wide changes. Minor changes could be made more easily. Potential indirect and direct tax implications of Brexit are discussed below, following a general discussion of alternatives to EU membership.
Source & more info: Deloitte