Global Tax Planning Risk: Brexit Challenges

The outcome of the recent US Presidential election surprised many, and it is just one more in a string of recent drivers of global economic, legislative, and regulatory uncertainty. Brexit, EU State Aid investigations, and the OECD Base Erosion and Profit Shifting (BEPS) Actions figure most prominently among these disruptions; each will significantly influence foreign direct investment, trade, banking, corporate taxation, and the exchange of tax information between jurisdictions.

The combined impact of these major changes has altered the global tax landscape while elevating the importance of the tax planning conducted within the tax departments of multinational enterprises (MNEs).

A recent CEO Insight article examines how MNEs can weather this uncertainty, while managing tax liability and reputational risk, through careful navigation and the help of powerful tools. The article features insights from Vertex thought leaders on the ways Brexit, BEPS, and EU State Aid will challenge MNE tax departments – and the ways that technology can mitigate these challenges.

Concerning Brexit’s impacts, George Salis, Senior Tax Compliance Principal and Certified Business Economist (CBE) at Vertex, emphasises, “The precise political, economic and supra-constitutional implications resulting from Brexit cannot be predicted until such time as the nature of the UK’s reformed relationship with the European Union (EU) becomes clear.”

What is apparent at this point, Salis notes, is that regardless of their domicile, companies with interests in the UK can expect to be affected due to the likely impact on tax exemptions currently enjoyed by virtue of the UK’s EU status. Potentially affected exemptions include the ability to claim derivative benefits, investments by EU taxpayers into UK companies becoming subject to the controlled foreign companies rules (CFC-Rules), and other applicable directives from which the UK must now withdraw.

Additionally, since the UK will remain a member of the OECD, G20, and WTO, it will continue to be a part of efforts to harmonise international trade and business practices. As a result, the UK – just like the EU – is committed to implementing the BEPS recommendations to tackle international tax avoidance, and will continue to subscribe to the Common Reporting Standard (CRS) and other transparency initiatives, as well as participating in the US FATCA reporting regime.

To read the CEO Insight article, click here.