Brexit as Discussed at #TLTaxCon19: What Did They Get Right?
More than two months ago, we jumped into a discussion on Brexit as part of our second annual international tax conference.
Considering the results of the UK general elections a few weeks back, what did our panelists correctly foresee? And what came as a total surprise?
Find out what was said in Barcelona on October 15th below.
Here are some of the event's main highlights!
Where do we stand with Brexit?
Nicholas Ryder: "I don't know where to start on Brexit; I think that's part of the problem. I think politically the UK is in a very awkward position, through its own fault. I think from a financial crime and tax perspective, I think no one really knows what the answer is going to be. I think the rhetoric coming from the UK government varies every day. And it's quite difficult, I think, to give it a real clear political and legal answer in terms of what will actually happen for Brexit."
Filippo Noseda: "I'm concerned about the politics and how the debate has been used. Because, yes, it's absolutely right. I come from a very democratic country, Switzerland, we hold votes on everything and, yes, 52% of people voted to leave. And I think that probably ought to be respected after two years. But the fact that the Prime Minister said that the only way, so the people voted to leave, and therefore leave without a deal that is effectively a lie. And I'm concerned about a Prime Minister, that is used to lying, and I come, as you know from Jenny—do support Jenny, thanks John, support Jenny, Jenny for President. But, I come from a law firm. Two years ago when I joined them and I said, "I do this for a living and these are kind of my clients and, by the way, I'd like to sue the government, is that okay?" and my firm said, "Oh, you know, welcome because we like suing governments," so my firm sued successfully the UK Government twice. First, Theresa May because when there was the vote on Brexit under UK constitutional law, unlike say Switzerland, the vote was indicative and in the UK supreme power should rest with Parliament and the Prime Minister said, "I go straight to Brussels and I tender my resignation under notice under article 50," and our client, Gina Miller said, "Sorry, you need to go to Parliament." Now we didn't achieve much, because at the end of the day, Parliament approved to Theresa May's stance, and that's another problem. And when a few weeks ago, Boris Johnson suspended Parliament by invoking an unwritten custom, clearly for an improper motive, we sued again. My take from that is that when you have this kind of things, regardless of the outcome, we must fight for the rule of law. And I'm happy to say that the rule of law in the UK is alive and well. But I'm really concerned by the kind of people that we are ruled by even after Brexit. And how is it possible that it was a disaster until last week and then all of a sudden Boris Johnson goes in a room without note takers for two hours with the Irish minister and, all of a sudden, there is a pathway? We are all being conned. And I think that's for me is of great concern."
Can you please tell us your opinion about the tax issues or the tax implications that may arise with the UK leaving the EU, either on a Brexit deal or a no-Brexit deal?
Jaume Perelló: "What I think is trickier is the payments made by the Spanish subsidiary to the holding UK company. I think about interest payments, royalty payments and dividend payments. As you probably know, all these payments right now are fully exempt in Spain. We have zero percent withholding tax here based on the European directives, the parents subsidiary directive and the interest royalties directives, which are transposed to the Spanish domestic legislation. Of course, if there is no deal and the UK leaves Europe, the directives and domestic legislation will no longer be applicable to the British company with interest in Spain. But here we have the double tax treaty as Filippo said.
With regard to interest and royalties, based on the double tax treaty, the withholding tax should still be zero percent based on sections 11 and 12. However, with regards to dividends, it can be a substantial difference because, unless the company holds more than 10%, the withholding tax can be a 10% or 19% based on our domestic legislation because the directive is no longer applicable. Maybe for multinational groups, this is not an issue, because the participation is hundred percent or more than 10%, but for others, that they have more than five, but less than 10%, the change can be substantial. Therefore, I would recommend reviewing these structures to look for another structure that is still efficient after Brexit."
How do you consider the Brexit will affect individuals and their tax obligations?
Filippo Noseda: "I think the biggest problem for Brexit, actually Brexit might be an opportunity for people to relocate to the UK because they want to actually get out of EU rules. And we have a very attractive system, which other countries have, in a way or another, copied like Spain has the Beckham deal, Italy now go the territorial system, Malta got the non-dom system. You have this system whereby effectively foreigners will come to the UK and live in the UK. They only pay tax on UK source income and gains for the first 15 years plus any income and gains that they bring into the UK, and that, coupled with the absence of succession tax effectively on those assets, means that a lot of families at the moment do relocate to the UK to plan for their future.
The concern there is less Brexit, is more of a socialist government. Because if Labour gets elected in, then they already said, whether they're going to do it or not is a different story. But they said they would abolish this territorial system of taxation called the remittance basis and we have I think 105 billionaires resident in the UK. I'm sure that many come for the weather, other surely come because of the tax break. And if those people were to relocate it would further damage the economy."