UK leaving the EU: briefing paper on direct and indirect tax implications

Global Tax Update:May 2016/United Kingdom

In the short term, a vote in favour of leaving the EU will have little, if any, immediate impact on indirect or direct taxes. The UK would remain an EU Member State until a secession agreement had been concluded. Few changes are likely to occur while the secession negotiations take place and the scope of future changes would be determined by the outcome of those negotiations. (Global Tax Update:May 2016/United Kingdom)

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This newsletter explains the following topics; 

1. Summary

Following secession it is possible that the UK’s approach to taxation could diverge from the current position, as future governments could have additional freedom of choice. Some of the possible models for post-EU arrangements would include continued adherence to the EU’s direct tax obligations, though.

2. Possible alternatives to membership of the EU

One of the key difficulties of determining the implications of leaving the EU is that there are a number of different alternatives to full EU membership. These alternatives offer different balances in terms of advantages and disadvantages.

3.Process for leaving the EU

Article 50 of The Consolidated Treaty on European Union provides a Member State with the right to “withdraw from the Union in accordance with its own constitutional requirements”.

4. Indirect Taxes

Among the issues to be addressed during the secession negotiations, would be how the UK deals with trade with the remaining EU Member States. Options are discussed at 2 above. It is noteworthy that the EU has entered into customs union with Turkey, as well as Andorra, Monaco and San Marino.

5. Direct tax

Direct tax is less likely to be directly affected by the UK’s leaving the EU than many other areas. Unlike indirect taxes, direct taxes are not expressly dealt with by the EU Treaties. As many decisions of the CJEU recite, direct taxes are solely a national competency, which must be exercised in accordance with the European Treaties.

6. Other implications likely to impact on taxes

Substantial corporate restructuring may necessitate a wholesale review of the business’ tax operating model.


>> Click for Japanese [英国のEU離脱:直接税および間接税への影響] 

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