|Brexit is a new
entry this year
The narrow vote by the people of the UK to leave the
European Union in a referendum on June 23 took the world
– and much of the UK itself – by
The decision has set the backdrop for the most complex set
of negotiations in legal history. It took Greenland three years
to exit the EU – a year longer than the UK will have
to navigate its exit once Article 50 of the Lisbon Treaty is
triggered – and most of the disputes of note in those
negotiations concerned fishing.
Most people in the tax sphere hoped that Brexit would not
happen because leaving the EU brings with it an almost
innumerable host of questions.
It throws into question huge amounts of UK legislation, and
the uncertainty this brings is one of the most potentially
damaging issues a business may be forced to deal with.
Worldwide, 41% of businesses are still waiting for further
clarity on Brexit before assessing its broader impact,
according to a recent joint survey by International Tax
Review and KPMG.
Other questions that remain unanswered – and may
remain unclear in 2017 – include: Will the UK retain
access to the European single market, or will tariffs be placed
on imports and exports? Which industries will be affected? What
will happen with customs? And excise? Will the UK continue to
follow the EU's VAT Directive? How will case law from the
European Court of Justice apply? Could the UK stay under its
jurisdiction? If not, what about cases that are still underway
at the time the UK leaves? Will the UK have to adhere to the
Anti-Tax Avoidance Directive? What will happen to information
exchange with EU countries?
While International Tax Review has written several
articles on Brexit so far, the key word continues to be
"uncertainty". This uncertainty, however, is not limited to the
UK and EU – it has also had far-reaching consequences
around the world.
"The withdrawal of the UK from the EU constitutes an event
that will wield a substantial impact not only on the future of
European integration but also on the international community as
a whole, which is why the world including Asia is paying close
attention to the Brexit negotiations," said an open letter
written by the Japanese government to the UK in the aftermath
of the referendum result.
The letter went on to make several requests of the UK and
EU, including the preservation of pre-Brexit tariff rates and
customs clearance procedures and of the 'single passport'
system, which is incredibly valuable for companies in the
Despite the uncertainty, some tax conclusions can be drawn
from developments since the referendum vote.
The UK will continue to take part in the BEPS
The UK has been a major proponent of the OECD's Action Plan
on Base Erosion and Profit Shifting (BEPS). There is no
indication that this trend will be broken. Indeed, the UK
surprised many when it became the first nation to include
public country-by-country reporting provisions in its laws.
Crucially, as an indicator of post-Brexit policy, this
legislative change happened after the referendum, when the 2016
Finance Bill (in which the power to switch on the requirement
for public disclosure of tax filings was included) was
unanimously approved by the House of Commons on September
Since then, Chancellor of the Exchequer Philip Hammond has
doubled down on the UK's public commitment to tackling tax
evasion, avoidance and aggressive tax planning, and has
stressed that the UK tax gap is "now one of the lowest in the
However, the UK government has remained silent on whether it
plans to apply pressure on its overseas territories –
where a significant proportion of the world's tax planning
takes place – to become more transparent.
The UK will remain an attractive place to do
The government knows that it has to work hard to keep jobs
in the UK, particularly if it were to fall into recession after
exiting the EU. The country that gave the world patent boxes is
more than capable of creating more quirks in the tax system to
keep companies onside.
Already, it has given assurances to car manufacturers,
leading to further UK investment and increasing production
– though what these assurances were remain a
The UK's corporate tax rate will continue to
Since the Conservative Party took power in 2010, at first in
coalition with the Liberal Democrats and then as the majority
party in 2015, UK corporate tax has fallen from 28% to 20%.
In the immediate aftermath of the Brexit vote,
then-Chancellor George Osborne – a former Global Tax
50 entrant – put corporate tax cuts at the heart of
his strategy to keep Britain competitive post-Brexit, setting
out plans to bring the rate down to 15%.
Hammond, his successor, confirmed in the Autumn Statement in
November that the corporate tax rate will continue to fall, in
line with Osborne's pre-Brexit plans, to 17% by 2020. However,
no radical corporate tax cuts to 15% were announced.
In 2017, Brexit will remain an important development to
watch. Prime Minister Theresa May plans to trigger Article 50
in March, which will allow the UK and EU to begin negotiating
the UK's exit. What this agreement holds will not come quickly
enough for the many businesses trying to plan for the