Date post: | 22-Jul-2018 |
Category: |
Documents |
Upload: | nguyennguyet |
View: | 215 times |
Download: | 0 times |
UK UPDATE AND THE IMPACT OF BREXIT
H L B N O R T H A M E R I C A N TA X C O N F E R E N C E
DECEMBER 2016
Oxford and Cambridge boat race 27 March 2016
MARCH Bad weather almost sink boat race…we like talking about the weather!
SEPTEMBER New five pound note is impossible to tear and can survive the wash
First polymer bank note enters circulation
BREXIT IMPLICATIONS Moving forward
L
ea
vin
g th
e E
U
• Referendum on 23 June 2016
• Uncertainty persists
• Plan to trigger Article 50 in March 2017
• Leave the EU by April 2019
• Many questions and hurdles
• Tax implications
• Some good, some bad and some ugly…
SIZE OF THE UK MARKET Total market value of all final goods and services produced in a year (GDP)
Country GDP Ranking 2016 Size ($ bn)
United States 1 18.5
China 2 11.4
Japan 3 4.7
Germany 4 3.5
UK 5 2.7
France 6 2.5
India 7 2.3
Italy 8 1.9
Brazil 9 1.8
Canada 10 1.5
1. DIRECT TAXES The good…
Direct tax rules must
comply with EU treaty freedoms
No restrictions on UK rates
or rules
1. DIRECT TAXES The UK could fall outside new EU direct tax proposals…fortunately
E
U P
rop
osa
ls
• Common Consolidated Corporate Tax Base
• Re-launched by European Commission in October 2016
• Common set of rules to calculate companies taxable profits in EU
• Anti-Tax Avoidance Directive
• Anti-avoidance in five specific areas
• Implemented by 31 December 2018
3. DIVIDEND WITHHOLDING TAX The bad…
Country Before After Domestic rate
Austria Directive and DTT DTT 5% 25%
Bulgaria Directive and DTT DTT 10% 5%
Croatia Directive and DTT DTT 5% 12%
Czech Republic Directive and DTT DTT 5% 35%/15%
Germany Directive and DTT DTT 5% 25%
Greece Directive and DTT DTT 10% 10%
Ireland Directive and DTT DTT 5% 20%
Italy Directive and DTT DTT 5% 26%
Latvia Directive and DTT DTT 5% 30/15/0%
Portugal Directive and DTT DTT 10% 25%
Romania Directive and DTT DTT 10% 16%
4. EMPLOYEE MOBILITY The ugly…
EU social security
contributions system
Potential for multiple social
security contributions
5. CUSTOM DUTIES AND VAT The ugly…
Example Tariff free? Customs
union
Access to EU
FTA’s
Removal of
non-tariff
barriers
Financial
contribution
Vote on
EU rules
Free movement
EU ► Yes ► Full ► Yes ► Yes ► Yes ► Yes ► Yes
European
economic
area (EEA)
Norway ► Mostly ► No ► No ► Some ► Some ► No ► Access to
single
market
► Customs
compliance
Bespoke Switzerland ► Mostly ► No ► No ► Some ► Some ► No ► Bespoke
access to
single
market
► Customs
compliance
FTA Canada ► Some ► No ► No ► No ► No ► No ► No
World Trade
Organisation
(WTO)
USA, China,
Japan
► WTO tariffs
► Unilateral
options
► No ► No ► No ► No ► No ► No
Source: EY
HOW TO PREPARE FOR BREXIT Evaluating your existing structures and operations
Key questions that need to be addressed
BREXIT RISKS AND OPPORTUNITIES Preparing the groundwork for change
UK entity
Trade
Employment
Finance Taxation
Operational
TRADING RELATIONSHIP Supply of goods or services to and from the EU
UK businesses that buy or sell goods within the EU are likely to suffer increased costs and administration if the UK leaves the Single Market (i.e. so called ‘hard Brexit’). This is because goods moving between the UK and EU would become subject to Customs procedures and the simplified VAT rules for intra-community trade would be lost. Those that supply services will also need to consider the new regime and any access restrictions or new regulations that may apply.
• What trade relationships do you have with customers or suppliers in the EU (or other countries with which the EU has trade agreements)?
• How dependent is your business and supply chain on the movement of goods between the UK and EU or other countries with which the EU has trade agreements?
• What impact would a hard Brexit have on your business and how could you minimise the impact?
• Is your business dependent on a particular regime e.g. passporting, to access the EU services markets (or markets of other countries with which the EU has trade agreements)?
• What will be the most efficient model for your business post Brexit and should you consider setting up operations somewhere within the EU?
• What other markets outside of the EU might be fruitful ones with attractive existing trade agreements?
EMPLOYMENT The free movement of workers is a founding principle of the EU
The free movement of workers has been a significant factor in the UK’s decision to leave the EU. As a result it can certainly be anticipated that there will be a people impact arising from Brexit.
• How reliant is your business on the free movement of EU workers across EU borders?
• What individuals do you have working in critical roles outside their home country?
• Will your ability to recruit staff be affected and do you need to reassess your recruitment and/or training policies?
• Is Hard Brexit likely to lead to a skills shortage in your industry and so drive up costs?
• What employee communication and engagement is appropriate?
FINANCE AND ACCOUNTING Cashflow, business plans and remodelling considerations
As with all change, it can be expected that there will be some winners and losers post Brexit. For some there may be cash flow impacts, perhaps arising from reduced consumer spending and higher costs, and therefore it is important to review your existing business plan and consider remodelling it for possible Brexit scenarios.
• How robust is your cash flow and have you stress tested liquidity by reviewing your working capital needs?
• What impact does forex movement have on your business and is it possible to mitigate on-going currency volatility?
• How do you determine your export pricing and commitments while sterling is weak knowing it might get stronger in the future?
• What is the timing of future capital expenditure and what are the costs and benefits of this investment?
• What are the terms of your existing bank facility, and could these need to be amended or renegotiated?
• With tighter lending criteria, what alternative sources of funding may be available to the business?
• Do you have grants or other funding sources from the EU?
• How are asset valuations likely to be affected in the year end financial statements?
TAXATION Direct taxes have always been the responsibility of individual member states
Direct taxes (corporation tax and income tax) have been left a bit in the shadows of indirect taxes, but companies may still be affected by changes in this area.
• How reliant is your business on the EU Tax Directives and how do these reduce your cost of doing business?
• What relief will be available in the future under bilateral double tax treaties?
• Should you repatriate profits from EU subsidiaries pre Brexit?
• What is your tax operating model and will you need to review your transfer pricing policy?
• What benefits could arise from a restructuring or remodelling of the group?
• How do EU rules currently affect workers social security contributions?
OPERATIONAL At the heart of all businesses are the relationships with customers and suppliers
Although there is still much uncertainty over the impact of Brexit, it is important to take time to assess the economic viability of the commercial relationships as they are the life blood for the business
• What is your contractual position with critical customers and suppliers?
• How are your customers and suppliers likely to be affected by Brexit, and what impact could this have on your business?
• Do you need to consider diversification of the supply chain and customer base and reassess supplier dependency?
• Would a strategic acquisition address structural changes or opportunities in the market?
• What are your terms of trade and should you revise aspects such as credit terms, cash collection and invoice settlement policies?
• Do you transfer customer (or employee) data between the UK and EU?
• Should you establish a Brexit response committee to monitor the on-going risks and opportunities for the business?
UK TAX ROUND UP Up date for US tax advisers
L
ea
vin
g th
e E
U
• BEPS
• People of Significant Control
• Residential property taxes
• Corporation tax
2
BEPS Action OECD Recommendation UK implementation Corporate response
1: Digital Economy Countries may choose to adopt a range of
unilateral measures.
UK introduced Diverted Profit Tax (DPT) but
wider than just digital sector.
Large multinational groups should
review DPT rules.
2: Hybrid Mismatches Adopt rules to deny tax advantages arising
from hybrid instruments and entities.
New hybrid mismatch legislation will apply
automatically from 1 January 2017.
Review mismatch transactions
between UK and other jurisdictions.
3: Controlled Foreign
Companies
Introduce / strengthen CFC rules. Existing CFC rules expected to remain,
exemptions may come under scrutiny.
Continue to apply existing rules.
4: Interest and other
financial payments
Restriction on deductibility of interest
expense and similar payments.
Tax deductibility of corporate interest to be
set at 30% of EBITDA from 1 April 2017.
Consider if net UK interest expense
exceeds de minimis threshold of £2m.
5: Harmful tax
practices
Preferential tax regimes, particularly
Intellectual Property (IP) regimes, to be
amended.
Patent Box has been revised from 1 July
2016 to include an R&D nexus approach.
Review IP assets and R&D
expenditure carried out by company.
6: Tax treaty abuse Amend tax treaties to prevent treaty shopping
and abuse.
Treaty changes may arise. Extended
withholding tax regime for royalties from July
2016.
Review cross-border royalty payments
and impact of new rules.
7: Permanent
Establishments (PE)
PE rules to be tightened resulting in lowering
of threshold to create tax presence.
UK likely to adopt lower threshold and
already introduced Diverted Profit Tax.
Assess any changes to PE risk for
overseas activities.
8 to 10: Transfer
pricing
Extensive changes focused on value creation
and aligning substance with profits.
New guidelines will be enacted into UK law
when finalised.
Review existing transfer pricing
arrangements against new guidelines.
11: Economic analysis
of BEPS
Measuring and monitoring of BEPS to show
impact of proposals.
HMRC to collect data to assess impact of
BEPS.
No response necessary.
12: Mandatory
disclosure regimes
Disclosure of abusive transactions,
arrangements and structures.
UK already has suitable disclosure rules. No change to existing rules.
13: Transfer pricing
(documentation)
Master file, local files and Country-by-
country-reporting (CBCR) obligations.
UK an early adopter of CBCR for periods
commencing from 1 January 2016.
UK CBCR required where worldwide
group turnover exceeds €750m.
14: Tax dispute
resolution
Minimum standards to improve tax dispute
resolution under Mutual Agreement
Procedures.
UK committed to mandatory binding
arbitration.
No response necessary.
15: Multilateral
instrument
Adopt multinational instrument to implement
treaty based BEPS outcomes.
No action until multinational instrument ready
for signing by end of 2016.
No response necessary.
PEOPLE OF SIGNIFICANT CONTROL Movement towards increased transparency…
Public disclosure of ownership of UK businesses
RESIDENTIAL PROPERTY Plenty of changes to get to grips with…
Taxes are starting to affect the UK property market
ENVELOPED DWELLINGS Significant tax costs to putting a wrapper around residential property
Enveloped Dwellings
15% SDLT on
properties > £500,000
28% CGT
Annual Charge
ANNUAL TAX ON ENVELOPED DWELLING ATED is not cuddly…
Property value 2016/17
£500,000 - £1m £3,500
£1m - £2m £7,000
£2m - £5m £23,350
£5m - £10m £54,450
£10m - £20m £109,050
£20m+ £218,200
Various reliefs apply from annual charge. Must claim on ATED return.
STAMP DUTY LAND TAX Slab based dual system
Tax Band (portion of purchase price)
Standard rate (first residential property
or main residence)
Higher rate (additional properties)
£0 - £125,000 0% 3% *
£125,000 to £250,000 2% 5%
£250,000 to £925,000 5% 8%
£925,000 to £1.5m 10% 13%
£1.5m+ 12% 15%
* Transactions under £40,000 are exempt
Menzies confidentiality statement This proposal is commercial in confidence. Its contents are the property of Menzies LLP and may not be circulated without our permission. The content of this
proposal is intended to provide general guidance and information about the services provided by Menzies LLP. The information does not constitute
professional advice and should not be relied upon as such. Menzies LLP accepts no responsibility for the consequences of any action taken or not taken in
reliance on the information contained in this proposal.
Whilst we make every effort to ensure that the content of this proposal is accurate and up to date, legislation is subject to change and Menzies LLP makes no
representation or warranty regarding the accuracy or reliability of the information in this proposal, after the date of submission.
For a full selection of legal notices, including registration numbers and registered office locations, professional indemnity insurance and The Bribery Act,
please see our website www.menzies.co.uk/en/legal-notice