Brexit: Worldwide winners and losers
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Brexit: Worldwide winners and losers

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As the UK's relationship with the EU evolves following the vote to leave, many nations are considering how they can benefit from the UK's exit, or whether they themselves need to make changes.

"The Brexit vote plunges all companies – big and small, domestic and international – into the abyss of the unknown when it comes to their tax matters and how to plan for the future, but the key is not to panic," said Kevin Conway, a London-based tax partner at King & Spalding law firm.


Ted McGrath, partner at law firm William Fry in Ireland, said that the UK's exit means Ireland is losing one of its key partners against some EU initiatives.

"Both Ireland and the UK have been opposed to closer harmonisation on tax matters. After Brexit, Ireland will lose an important ally at the EU negotiating table, leaving us more isolated on our stance against harmonisation on tax matters. This could accelerate the possibility of the introduction of a mandatory CCCTB for all EU member states," he said.

Nevertheless, research suggests Ireland will profit from the UK's departure. Ireland's Economic and Social Research Institute said: "Ireland and the UK are perceived to be similar as alternative locations for FDI in particular by investors from outside the EU and for FDI, in the services sector. This result suggests that a possible redirection of FDI from the UK to Ireland in the case of Brexit would be more likely by investors from outside the EU and in the services sector."

Tax practitioners are less optimistic.

The EU's draft Anti-Tax Avoidance Directive (ATAD) will require member states to introduce or amend their controlled foreign companies (CFC) legislation.

"Unlike many EU countries, Ireland taxes dividends at either a 12.5% or a 25% corporation tax rate, and operates a wide-ranging credit system for double tax relief. Ireland taxes dividends as an alternative to having a CFC regime," said Dublin-based law firm Mason Hayes & Curran. "With the Brexit vote decided, and the UK expected to highlight the benefit of the UK as a holding company location which exempts dividends, the Irish may change their tax regime."

Ted McGrath also said that the possible reintroduction of VAT and customs duties could have "serious" implications for Ireland. The border between the Republic of Ireland and Northern Ireland "would become the only land border between the EU and the UK", he said. Moreover, the high level of trade between Ireland and the UK would lead to "increased costs and administrative burden of doing business with the UK would be likely to increase the cost of goods and have a negative impact on overall Irish/UK trade as well as having potentially negative economic and political effects on the border region", McGrath added.

The UK-Irish trading relationship could be further damaged if EU state aid rules do not apply to the UK, allowing it to offer tax and non-tax incentives to UK based businesses, McGrath added.

For the European Commission, however, the UK's exit removes a significant obstacle from its path towards a Common Consolidated Corporate Tax Base (CCCTB) to harmonise corporate taxation across EU nations.


Similarly to Ireland, Sweden's Prime Minister Stefan Löfven said the country has lost an important partner in the EU.

"We have often pursued issues together, not least important trade issues. The UK will remain an important partner for Sweden in its new role outside the EU," said Löfven.


Brexit will also have significant repercussions in Scotland, with many predicting a second referendum on independence from the UK. However, this brings with it more questions over how Scotland would have to adapt its relationship with the UK in terms of trade, tax and other areas.

A majority of citizens in all 32 councils in Scotland voted to remain in the EU, which has spurred Scotland's First Minister Nicola Sturgeon to consider a second referendum.

"Given the voting pattern across Scotland and what seems to be cross-party political alignment, it is no surprise that the Scottish government is seeking to maintain the country's ability to trade and employ EU citizens freely and to have free movement of Scots throughout the EU," Isobel D'Inverno, Brodies' director of corporate tax, told International Tax Review.

"If Scotland were to become an independent country, the existing UK tax legislation is likely to continue to apply in Scotland in its current form initially. That already includes some devolved Scottish taxes, the Land and Buildings Transaction Tax (LBTT) and Scottish Landfill Tax (SLfT), which are administered and collected by Scotland's new tax authority, Revenue Scotland. The Scottish approach to taxation does differ from that of the UK, with arguably a greater focus on simplicity and on combatting avoidance, and that would be likely to inform the development of the tax system in an independent Scotland," D'Inverno said.

According to Michael Dean, head of the EU, competition & regulatory practice at Maclay Murray & Spens in Glasgow, the UK's uncertain constitution very arguably requires the government to seek approval of the UK and Scottish Parliaments before giving notice to start the countdown process to leave the EU under Article 50 of the Lisbon Treaty. Approval from the Scottish lawmakers would be required because a UK Parliament vote would affect a range of matters devolved to the Scottish Parliament. "Therefore, we think a Scottish referendum may be the political price of Scottish Parliament consent, especially if the UK government is set on a negotiating position outside of the EU single market," Dean told International Tax Review. "We think that such a referendum is likely."

"If there is such a referendum – and the choice is between, on the one hand, remaining part of a UK political establishment which has lost credibility and, on the other, becoming independent but be part of the UK which remains within the EU or re-joins (subject to a potential Spanish veto), we think that the majority vote would be to secede from the UK.

"The economic underpinning might come from the investment attracted as an EU member. We think independence is quite – if not very – likely. We doubt whether issues regarding currency will dissuade voters next time," Dean said.

If Scotland became independent, a number of areas would need to be addressed, including the negotiation of new double tax treaties, D'Inverno said. In addition, mechanisms would need to be developed to apportion company profits between operations in Scotland and the rest of the UK. "This would not involve starting from scratch, however, as the approaches adopted by the OECD in relation to cross-border operations over a number of years could be followed."

"We might see a situation arise in which an independent Scotland remained part of the EU post-Brexit, with an EU border between Scotland and England. In theory that could present issues for trade between Scotland and the rest of the EU, but in practice is that likely to be the case? Those negotiating the UK's Brexit deal are likely to try and ensure that existing trading relationships are protected so far as possible and that will apply to dealings between Scotland and the rest of the UK in the same way as to transactions between the UK and the rest of the EU," D'Inverno said.

According to Dean, if Scotland remains part of the UK and Britain does not have access to the single market, Scottish businesses "will face not only tariffs but also potential other barriers to trade such as charges equivalent to tariffs and non-tariff barriers such as quotas, and administration of a customs nature (certificates of origin, licenses, type approval), regulatory barriers (standards), lack of free access to public markets on a non-discriminatory basis. These are not absolute barriers to business but additional potential hurdles."

"In both potential scenarios (Brexit and/or Scottish independence) the starting position is likely be the existing law and practice, rather than a void; and in that position there are some back-stops to cope with issues crossing new borders, such as unilateral tax credit relief to protect against double taxation," said D'Inverno. "It would take time to develop comprehensive new arrangements, although an independent Scotland within the EU would have a compulsory bedrock of Community level tax laws on which to build," she said.


The UK's departure may also affect US tax treaty eligibility for European companies, according to law firm Akin Gump Strauss Hauer & Feld.

"US tax treaties generally require that a company claiming treaty benefits meet certain ownership requirements, often by requiring ownership by persons in the country in which the company is organised. In the case of US treaties with EU members, ownership by other EU members can often satisfy this requirement for purposes of providing certain treaty benefits (referred to as claiming 'derivative benefits' under the treaty). Accordingly, when the UK is formally no longer an EU member, companies that relied on UK owners as members of the EU could lose the ability to claim derivative benefits," the firm said.

However, if the UK choses to become a member of the European Economic Area (EEA), "it may be still qualify for derivative benefit status, depending on the treaty because some treaties accord derivative benefits if the owner is a member of the EEA," the firm added.


"The fallout from Brexit on India so far has been contained," said Zulfiqar Shivji, head of BDO India's Transactions Advisory Services team.

"Since the UK accounts for a small portion of India's trade/remittance flows (3.3% of Indian exports and 1.3% of imports) the near-term impact of Brexit on Indian trade is more likely to be determined by the ramifications on the Eurozone growth, rather than by direct economic linkages to the UK," he said. However, the medium-term impact on India is "shrouded in much greater uncertainty with the length and exact nature of Brexit being hard to quantify", Shivji said.

Looking further ahead, India may face other challenges in the medium to long term, Shivji said, such as:

  • From the policy response that may be unleashed in China, Japan and other countries to counter their own economic slowdown, both domestic as well as external; and

  • Other countries following the UK in exiting the eurozone.


In China, Brexit will not have much impact in terms of taxation, according to Gilbert Shen, senior associate at CMS Legal in Shanghai. "Chinese government and tax authorities have not issued any regulations to specifically deal with Brexit," he said.

"As to the Chinese business in the UK, it depends much on whether the UK government has changed any policy on the investment from China after the exit," said Shen.


In Austria, Finance Minister Hans Jörg Schelling said he "does not expect Brexit to have a significant effect on the Austrian economy, as the Budget was prepared based on growth forecasts by economic research institutes."

Schelling also said he was unafraid of the much cited "domino effect" of other countries possibly following Britain for a referendum on EU membership.

"The countries always mentioned in this regard have an overall pro-European majority. The vote by the United Kingdom is nevertheless a wake-up call for the EU," said Schelling. "We have to look for and take advantage of benefits even in the context of a Brexit. Attempts to make citizens aware of the benefits brought by the European Union were unsuccessful – this definitely has to improve!"


Observers suggest that Brexit will not have a direct and immediate impact on Singapore, but could delay trade agreements.

The Singapore Business Federation said the UK's decision "adds more risk to Europe's stability and to global markets at a time when the world economy needs more stability. The possibility of a weaker EU, given its importance as a trading and investment partner to Singapore, will have significant impact on our economy."

"The long-term impact of Brexit on Singapore and the world is hard to ascertain as this path has never been trodden before," the organisation said, but noted that "Singapore companies that have investments in the UK may be impacted." In addition, it recommended that Singapore companies planning to use the UK as the gateway to the EU may have to consider alternative plans.

South Africa

Andrew Wellsted, head of tax at Norton Rose Fulbright for South Africa, said the nation is adopting a "wait and see" approach, based on how the UK exits the EU. "South Africa's economy and currency is so affected by offshore events like Brexit and we're grouped with emerging markets, so we're watching how the situation unfolds," he told International Tax Review. "We're hoping the effect on the local economy is not too significant while the markets adjust following the outcome of the vote."

The UK: What next?

To leave the union, the UK has to notify the EU that it intends to withdraw from the institution. The notice would trigger Article 50 of the Lisbon Treaty, which provides for a two-year negotiating timeframe between the UK and the 27 remaining member states to tackle key tax issues, such as EU tariffs on British goods.

"We can be sure that there will be no major tax changes without legislative process and announcement, and it is highly unlikely that any changes will be backdated to a date before specific announcements," said King & Spalding's Kevin Conway.

The vote is expected to trigger changes to tax legislation, potentially driving up the compliance and administrative burden for businesses. Once the UK does leave the EU, its tax rules will almost certainly begin to diverge over time from EU rules.

"Taxation will inevitably become more complex and burdensome for multinationals that have group companies in both the UK and EU," said Mathew Oliver, partner and corporate tax lawyer at Bird & Bird.

Some analysts remain optimistic, however, saying the UK could be a more attractive destination for investors if it is not part of EU-wide initiatives targeting corporate tax avoidance, plans to harmonise corporation tax rules and the financial transaction tax.

KPMG told International Tax Review that while being outside the EU "brings challenges", it should also be noted that politically and economically successful jurisdictions like Switzerland have shown "they are not insurmountable".

"Bear in mind that non-EU Switzerland has been home to many of the world's largest and most successful MNCs for years, as well as a regional headquarter for many US and Asian groups," KPMG said in a statement responding to International Tax Review questions.

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