On Thursday, December 8th, Taxlinked hosted the webinar “International Tax Implications of Brexit” with the participation of a great panel of experts who talked us through how this landmark event will impact international taxation in the region.
We’d like to thank our panelists Luca Cerioni, Steve Landes and Felix Bagilishya for sharing their wealth of knowledge and Giancarlo Cervino for doing an excellent job as moderator.
As usual, the full transcript for the event is now available HERE so please feel free to share with your network and download.
For now, here are some of the event’s main questions and highlights!
Do you agree with a “hard” Brexit in which the borders of the UK would be closed to the free movement of people coming from the EU?
“If the UK wants to remain a great trading nation, especially in term of services where the UK has a strong comparative advantage in service trade—which is growing more strongly globally than trading goods—the UK will need to rely on foreign highly skilled people coming from abroad.”
“I believe that from the UK viewpoint, at least in economic terms, a soft Brexit will be more convenient than a hard Brexit. And especially if one considers migration from EU as mostly a migration of skill: skilled workers working in the City, working in the financial industry and working in other sectors of economy… In terms of what immigrants absorbed and what they were bringing into the UK, what they were bringing is worth more than what they were absorbing.”
“Whether we can negotiate, whether we can actually persuade all 27 member countries to agree to a soft Brexit arrangement is a completely different matter. It just may not be possible to get an agreement in a reasonable period of time, in which case you'll end up with a hard Brexit arrangement with much logistics and national trade and much reduced immigration going both ways.”
Generally speaking, how do you think Brexit will affect corporate taxation?
Luca Cerioni: “It's very realistic to expect that there will be a reduction in corporation tax rates both in the UK and mainland Europe. Of course, the UK will try to attract more investment and will reduce its corporate tax rate. But let’s remember that the EU has never forbidden its own member states from reducing corporate tax rates… The EU, at the political level, distinguishes between harmful tax competition and fair tax competition; it is said that if our tax competition is implemented through a reduction of generally applicable corporate tax rates, not through the special tax regime, then it is a fair tax competition.”
Steve Landes: “I don’t think there's actually a race to the bottom. The UK’s tax rate is still above some other EU countries. More important is the ease of doing business and employment regulations. And there, the UK does still have a bit of an edge over the rest of the EU. I suspect that edge will increase as the EU moves away from the UK and the UK is able to have less onerous business regulations.”
With Brexit in mind, which are the primary tax-related considerations for multinational companies operating in the UK?
Felix Bagilishya: “What will happen to VAT once the UK loses the EU? It's a question mark. Let's say, the UK will no longer be obliged to maintain a VAT system, but given its revenue, rating potential, aging population, the cost of energies, etcetera, it is extremely unlikely that it will be abolished since VAT has been incorporated into domestic law. Leaving the EU will not automatically abolish VAT and it will not change, unless and until the British parliament changes the laws.”
Luca Cerioni: “If a multinational group has a branch of subsidiaries in the UK and in an EU country, until now, they could rely on the current Subsidiary Directive, Merger Directive, and the Interests and Royalties Directive. Once the UK is no longer a member of the EU, it all depends, in my view, whether the UK goes toward a hard Brexit or a soft Brexit. Because if it goes toward a hard Brexit, EU countries will no longer be bound, not even by the agreement to consent to the freedom of movement of companies toward the UK. I would then expect that there would be some obstacles for multinational companies, for example, which should move their tax residency to the UK.”
What will have the greater impact: changes to the UK tax system following Brexit, or a change in the way that other European tax systems apply to the UK once it is no longer an EU member?
Steve Landes: “There is a worry in the UK that there are lot of European countries that want to punish the UK for leaving the EU and that may take the form of discriminatory taxes, no access to the markets, possibly making it difficult for British people living in the EU. There has also been a suggestion that British people will be able to purchase an EU passport, so they become dual nationals that may lead to them directly contributing towards the European budget and paying separately for that on a voluntary basis. This is all possible. I think that by punishing the UK, the EU will be also punishing itself, but that is quite possible because they feel that they should be equally paid in the EU to protect the EU political project in much the same way that the Greek economy is being forced into some very drastic contraction to save the Euro.”
Felix Bagilishya: “It will depend on the type of Brexit we will end up with; if it's a soft or hard Brexit, the way the EU will consider the UK if the UK is becoming very aggressive in terms of tax planning or implementing some very aggressive solutions in order to attract more FDI. But at the same time, the UK is part of the G20 and OECD, so there is a limit in terms of what the UK can do.”
To download or read the full transcript, please visit our publication found HERE.