Focus needed on UK’s future tax relationship with the EU

24 June 2016

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Chris Sanger, head of tax policy at EY, comments: “Businesses and consumers will soon have to adjust to a new trading reality. On the one hand, businesses will be faced with uncertainty, at least in the medium term, about the tax rules and regulations that apply to them. Consumers, on the other, may find price increases following a weakening of the pound and potentially be exposed to tariffs. This will depend on the outcome of the trade negotiations between the UK and the EU and whether the UK feels that it needs to impose tariffs on the goods imported from the EU in an attempt to encourage the EU to lower its own tariffs in return.

“We have already been warned by the Chancellor that there may be a need for an emergency Budget. Despite the disagreement within the Conservative Party of the economic outcome and hence the need for a new forecast, the Chancellor may feel inclined to raise taxes or to further cut spending to shore up the public finances and reverse any short fall arising from lower growth prospects. However, such an increase in the tax burden could impact the UK’s tax competitiveness.

“On the corporate tax side, a vote to Leave the EU opens up the option for the UK government to offer more state aid, which could support large infrastructure projects. In addition, the anti-tax avoidance directive, which passed through the EU parliament earlier this week, will no longer apply to the UK once the UK has exited. Although this will allow UK lawmakers more freedom, it is unlikely that the UK would choose to deviate far from it, given the country’s active role developing similar proposals within the OECD.   

“Finally, the UK and France, have been the two EU countries pushing for Country By Country Reporting (CBCR) to be made public. With the UK leaving the EU there will now be one less member state calling for such a move.

“More fundamentally, however, the discussion will now have to move to the detail of what our future relationship, including tax relationship, is with the EU. That’s a big task that may well take far longer than many envisage.”