Author:Ms Linda Swartz, Jason D. Schwartz, Mark P. Howe, Adam Blakemore and Gary T. Silverstein
Profession:Cadwalader, Wickersham & Taft LLP

The United Kingdom left the EU on 31 January 2020. “Brexit” will undoubtedly be remembered as an important event in the history of the United Kingdom. In the taxation context, however, it is only natural for us to ask the questions: have we “Got Brexit Done” and, if so, is that a big change for UK taxes?

The short answers are as much of an anti-climax as the famous British weather. Brexit, at least in the tax context, has been partly “done.” And as regards a big change happening to UK taxes, the answer is “not much (yet).” In both regards, it is useful to mention that the immediate tax changes are mostly unintended by the British government.

This is because the UK and the European Union have entered into a withdrawal agreement, which was ratified before 31 January 2020 (the Withdrawal Agreement). At 11pm on 31 January 2020, the UK and the EU entered into a transitional (or, as the UK prefers to call it, “implementation”) period, during which most EU rules will continue to apply in, and in respect of, the UK.

The UK is not free from the EU rules yet…

The reason for having a transition period is to provide both the UK and the EU with a standstill period during which they negotiate additional arrangements.

The Withdrawal Agreement provides that most EU law (including as amended or supplemented) continues to apply to, and in, the UK and most references to “EU member states” in EU law (including as implemented and applied by EU member states) include the UK.

This means, for example, that the UK is still within the EU VAT regime, customs union and single market. All of the EU tax directives remain in place for the UK during the transitional period, meaning that UK companies can still take advantage of the Interest and Royalties Directive and the Parent-Subsidiary Directives to repatriate funds from and to EU subsidiaries or parents without being subject to withholding tax.

This also means that the UK remains under an obligation to implement outstanding EU tax directives. These include (to the surprise of some commentators on popular social media sites) the EU's Anti-Tax Avoidance Directive 2 (ATAD 2) and the EU's Sixth Directive Amending the Directive Cooperation in Tax Matters (DAC 6). On an even closer inspection, Brexit has little impact in practice on the implementation of these existing EU tax directives. The UK has already committed itself to the implementation of DAC 6 (despite Brexit) and has already complied with the...

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