In view of the uncertainties surrounding the ratification of the Withdrawal Agreement, all interested parties, and especially economic operators, are reminded of legal
repercussions, which need to be considered when the United Kingdom becomes a third country.
Subject to the transition period provided for in the Withdrawal Agreement, as of the withdrawal date the EU rules on direct taxation no longer apply to the United Kingdom.
This has in particular the following consequences:
1 European Council Decision (EU) 2019/584, OJ L 101, 11.4.2019, p. 1.
2 Following a request by the United Kingdom, the European Council had decided a first extension on 22 March 2019 (European Council Decision (EU) 2019/476, OJ L 80 I, 22.3.2019, p. 1).
3 On 11 April 2019, following a second request for an extension by the United Kingdom, the European Council also decided that the decision to extend until 31 October 2019 (postponed to 31 January 2020 with a transitional period to effective withdrawal on 31st December 2020) would cease to apply on 31 May 2019 if the United Kingdom had not held elections to the European Parliament and had not ratified the Withdrawal Agreement by 22 May 2019. As the United Kingdom had not ratified the Withdrawal Agreement by 22 May 2019, it held European elections on 23 May 2019.
4 A third country is a country not member of the EU.
5 In addition, if the Withdrawal Agreement is ratified by both parties before that date, the withdrawal takes place on the first day of the month following the completion of the ratification procedures.
6 Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the
European Union and the European Atomic Energy Community, OJ C 144 I, 25.4.2019, p. 1.
It is recalled that, in order for the transition period to apply, the Withdrawal Agreement has to be ratified by the EU and the United Kingdom.
Many EU-27 Member States have concluded bilateral double taxation agreements with the United Kingdom, often based on the model convention with respect to taxes
on income and on capital of the Organisation for Economic Co-operation and Development (hereafter ‘OECD model convention’).
EU law on direct taxation is characterised by the additional, parallel, applicability of these bilateral double taxation agreements between Member States.
Unlike most bilateral agreements concluded by Member States in matters subsequently covered by EU legislation (“old bilaterals”), these double taxation agreements between an EU-27 Member State and the United Kingdom will usually continue to apply after its withdrawal as regards direct taxation.
These bilateral double taxation agreements may be of particular relevance for points 1,9 2,10 4 and 511 below but are not addressed in this notice; information on them may be obtained from the national tax authorities.
1. TAXATION OF PROFITS DISTRIBUTED BETWEEN PARENTS AND SUBSIDIARIES
Council Directive 2011/96/EU12 aims at ensuring that profits of subsidiaries incorporated in a Member State and paid out to the parent company in another Member State are taxed only once. To this end it sets out which Member State (Member State of the parent company or of the subsidiary) may or may not tax profits received by the parent company from its subsidiary.13
As of the withdrawal date, Directive 2011/96/EU no longer applies to EU-27 Member States in relation to the United Kingdom. This means that, for profits distributed by the subsidiary to the parent company as of the withdrawal date, Directive 2011/96/EU no longer applies. Applicable national legislation should be
9 Cf. Article 10 of the OECD model convention.
10 Cf. Articles 11 and 12 of the OECD model convention.
11 Cf. Articles 26 and 27 of the OECD model convention.
12 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, OJ L 345, 29.12.2011, p. 8.
13 Article 4(1) of Directive 2011/96/EU.
2. TAXATION OF INTEREST AND ROYALTY PAYMENTS MADE BETWEEN ASSOCIATED COMPANIES
Council Directive 2003/49/EC14 aims at ensuring that interests and royalties arising in a Member State, with the beneficial owner being in another Member State, are taxed only once. To this end it sets out that interest or royalty payments arising in a Member State shall be exempt from taxes if the beneficial owner of the interest or royalties is a company of another Member State.15
As of the withdrawal date, Directive 2003/49/EC no longer applies to EU-27 Member States in relation to the United Kingdom. This means that for payments or interests or royalties paid as of the withdrawal date, Directive 2003/49/EC no longer applies. Applicable national legislation should be consulted.
3. TAXATION OF GAINS IN THE CONTEXT OF A MERGER, DIVISION OR PARTIAL DIVISION
Please note – this notice does not address:
– EU law on merger control; 16 and
– EU law setting procedural rules for cross border mergers.17
Council Directive 2009/133/EC18 provides that in case of mergers and other transactions certain values are not included when calculating tax debt. Directive 2009/133/EC applies to mergers and other transactions involving companies from two or more Member States.19
As of the withdrawal date, Directive 2009/133/EC no longer applies where a merger or other transaction involves a company established in the United Kingdom. This means that EU-27 Member States are not obliged on the basis of EU law to exclude certain values when taxing companies involved, as of the withdrawal date, in a merger or other transaction with a company established in the United Kingdom. Applicable national legislation should be consulted.
14 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, OJ L 157, 26.6.2003, p. 49.
15 Article 1(1) of Directive 2003/49/EC.
16 See „Notice to stakeholders – Withdrawal of the United Kingdom and EU competition law” (https://ec.europa.eu/info/brexit/brexit-preparedness/preparedness-notices_en#comp).
17 See „Notice to stakeholders – Withdrawal of the United Kingdom and EU rules on company law” (https://ec.europa.eu/info/brexit/brexit-preparedness/preparedness-notices_en#just).
18 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States, OJ L 310, 25.11.2009, p. 34.
19 Article 1(a) of Directive 2009/133/EC.
4. ADMINISTRATIVE ASSISTANCE, RECOVERY
Council Directive 2011/16/EU20 provides for certain types of cooperation between Member State tax authorities and exchanges of certain information either spontaneously, on request or automatically. Information exchanged automatically includes information on certain types of income, certain financial income (both mainly related to individuals), certain rulings and advance pricing agreements, certain country by country reporting, and certain tax schemes.
As of the withdrawal date, Directive 2011/16/EU no longer applies in relation to the United Kingdom. This means that as of the withdrawal date, EU-27 Member States do not have to provide or receive the cooperation or information as outlined above on the basis of EU law.
Council Directive 2010/24/EU21 provides for procedures for the recovery of certain taxes, including direct taxes. As of the withdrawal date, Directive 2010/24/EU no longer applies in relation to the United Kingdom. This means that as of the withdrawal date, EU-27 Member States do not have to provide the United Kingdom assistance for the recovery of claims on the basis of EU law.
It is recalled that, apart from the applicability of bilateral double taxation agreements (see above),22 the 1988 Multilateral Convention on Mutual Administrative Assistance in Tax Matters (as well as the Multilateral Competent Authority Agreement based on Article 6 of the OECD Multilateral Convention on Mutual Administrative Assistance) may apply.
5. TAX AVOIDANCE PRACTICES
Council Directive (EU) 2016/116423 and Council Directive (EU) 2017/95224 (the ATAD and ATAD 2 respectively) provide for five minimum anti-tax avoidance measures in the area of corporate taxation that Members States have to apply.25
20 Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation, OJ L 64, 11.3.2011, p. 1.
21 Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures, OJ L 84, 31.3.2010, p. 1.
22 Bilateral double taxation agreements may remain applicable as regards direct taxation.
23 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, OJ L 193, 19.7.2016, p. 1.
24 Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries, OJ L 144, 7.6.2017, p. 1.
25 Three of these measures (interest limitation, general anti abuse rule and controlled foreign company rule) had to be transposed by Member States on or before
31 December 2018 (Article 11(1) of Directive (EU) 2016/1164), while exit taxation is to be transposed by 31 December 2019 (Article 11(5) of Directive (EU) 2016/1164).
As of the withdrawal date, Directive (EU) 2016/1164 no longer applies to and in the United Kingdom. Stakeholders should be aware, however, that these easures are an EU wide coordinated response to the implementation of recommendations for action in the context of the initiative against base erosion and profit shifting (BEPS) by the OECD, in which the United Kingdom participates.
The website of the Commission on EU rules for corporate taxation (https://ec.europa.eu/taxation_customs/business/company-tax_en) provides general
information concerning the legislation outlined above. These pages will be updated with further information, where necessary.
Directorate-General for DG Taxation and Customs