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The Price of Decoupling: Five Overlooked Brexit Points

Thus far Britain’s vote to leave the EU has sparked concern, bouts of panic, and plenty of misinformation. Here are five key Brexit points and perspectives to steady you as the vote’s aftereffects reverberate:

  1. This is a geopolitical seismic event: While the immediate reaction to the Brexit vote was financial (equity-market volatility), keep in mind that the vote is a geopolitical event. As The Wall Street Journal’s Justin Lahart notes, “Part of why Brexit has had such a pernicious effect on global markets is that it is in many ways a new kind of shock.” What we will be watching for is the geopolitical fallout and future impact on Britain’s long-term legacy and role.
  2. Avoid information cascades: Earthquakes; whether geological or geopolitical, can be extremely unnerving and damaging experiences. We must then wait for the shock-waves. The vote has sparked widespread, but as yet unnecessary, anxiety. Yes, the vote was shocking to many, and the implications may be profound. But those implications are not clear yet; and will not be for some time. Too many of us, including the media and information outlets, are speculating and repeating others’ speculations and frenzy, which is creating what economists refer to as information cascades.
  3. Beyond the vote, nothing has happened. Believe it or not, for now; Britain remains in the EU – at least until Article 50 of the Treaty of Lisbon is triggered, launching formal divorce procedures. At the moment, UK Prime Minister David Cameron says he will not enact Article 50 before his successor is chosen in October. We’re days into a process that could take perhaps, up to two years.
  4. The real question is: To what extent will the EU and Britain decouple? Once Article 50 is triggered, the EU and UK have up to two years to reach agreement on exit terms. Those terms will determine the extent to which the two entities will cooperate on trade, immigration, security and more. Those terms may foster extensive cooperation, despite the uncoupling, or antagonism. We will not know the implications for some time. Will Britain remain in the European Free Trade Association (EFTA) or the greater European Economic Area (EEA), thus preserving and economic alliance, with Europe, but not political? In the coming weeks and months, this will need to be measured in terms of what will be the fiscal outcomes from political and economic repositioning of the EU, as well as the impacts to both the UK and the EU.
  5. In uncertainty lies opportunity: Lost amid all of the Brexit anxiety is the fact that Britain’ actual exit from the EU may generate valuable opportunities for multinational entities (MNEs), include tax benefits. EU state aid enforcement could cease in Britain. As another WSJ piece reports, “The UK outside the EU would be liberated of the bloc’s coordinated tax rules, giving the country an opportunity to cut taxes for companies, grant more financial aid to ailing firms and dangle breaks to attract corporations.” If Britain achieves total withdrawal from the EU, could it present a “loose” remedy for the BEPS?

That’s something to think about while others continue to worry and speculate…

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.


About this Contributor

George Salis Headshot
George Salis
Principal Economist and Tax Policy Advisor

George L. Salis is Principal Economist and Tax Policy Advisor and is also an economist, lawyer and tax professional with 23+ years of experience in international taxation and trade compliance, tax planning and controversy, fiscal regulation and tax economics consulting. George holds a BSc in economics and political science, an LLB, an M.A. in legal and ethical studies and an LLM in international tax law. He also holds a PhD in international law and economic policy and is a certified business economist.

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