Tax & Accounting Blog

Should Brexit Cause Concerns for the BEPS project?

BEPS, Blog, Checkpoint, ONESOURCE, Transfer Pricing July 14, 2016

The Brexit vote has taken the world by storm. What does it all mean and what do businesses need to do? All good questions and the fallout from Brexit is being carefully examined by astute and focused minds, but there are even bigger questions to ask:

  • How will countries react to Brexit, especially in Europe? [That reaction has already started with France, Germany, Spain etc – see below.] What are the implications of that?
  • Is Brexit now a concern for BEPS?

The international tax reforms sought to be made by BEPS are well known. However, while the UK supports BEPS (albeit having taken unilateral action with measures like its Diverted Profits Tax), its Brexit vote has already started corporate tax manoeuvres among countries keen to attract British investment. In addition, UK Chancellor of the Exchequer George Osborne has flagged reducing the UK corporate tax rate to less than 15% to help offset the shock to investors and boost the UK economy post-Brexit.

While some, like EU Economic Affairs Commissioner Pierre Moscovici, doubt the UK will go through with its corporate tax cut, calls have come from leading French Presidential candidate Alain Juppe that France should react to Osborne’s move. French Prime Minister Manuel Valls has pledged to make France’s tax regime for expatriates the most favourable in Europe in a grab for London banking business displaced by Britain’s decision to quit the European Union. Spain is reported to be considering granting tax breaks to attract banks and international firms looking to move operations away from Britain. And Germany is waiting in the wings to see if Osborne will present his plans to European finance ministers, while noting that taxes set in the European Union’s internal market “should be fair”. Meanwhile, German Finance Minister Wolfgang Schaeuble has sounded a salutary warning that Germany does not want to see a “race to the bottom” on tax policy in Europe.

Corporate tax rate shopping may become the new game in town for investment opportunities if more countries look at rebalancing their corporate tax rates. BEPS is already moving against harmful tax practices and treaty abuse.

Director of the Centre for Tax Policy and Administration at the OECD, and leading BEPS proponent, Pascal Saint-Amans, said further moves by the UK to reduce its corporate tax rate “would really turn the UK into a tax haven type of economy”, adding that there were practical and domestic political barriers to doing this.

BEPS is already a long way down the track, although not finished yet, and the implications of, and reactions to, Brexit are still being worked through. A renewed focus on corporate tax rates could be just one of the outcomes from Brexit (with concerns about the “race to the bottom” on tax rates already gaining traction), as will the use of tax incentives to attract business and investment. One might ask – Can BEPS cope with Brexit? Probably, but corporations are already struggling with the massive implementation implications of BEPS. Although it may present opportunities, Brexit is probably a distraction they don’t need right now. Interesting times await!

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