May Triggers Article 50 – So What?

Written by Simon Marsh on 5 April 2017


There have been so many column inches, numerous news updates and so much political chatter about the momentous event but when it came, was something of a let down – Theresa May writing a letter to the European Council did not seem to deserve being called “triggering” and you would be forgiven for asking – So What?

So nothing on the political front, as the posturing continues – the President of the European Council, Donald Tusk, wants the UK to pay for its commitments but has agreed negotiations will deal with the future EU-UK relations (which is required anyway by Article 50), but in a “phased approach”, whatever that is, and Michael Howard would like Theresa May to be Margaret Thatcher.

So what for businesses?

In the immediate term very little except the beginning of the end of the current uncertainty.

However over the next two years the BRexit negotiations and their outcome will become increasingly important for businesses and some of the areas of concern include:

VAT: This is likely to be here to stay and the UK will in all probability closely track EU changes to minimise tax avoidance and double taxation. For those operating the Mini One Stop Shop (“MOSS”) or the Tour Operators Margin Scheme (“TOMS”) however, there are likely to be substantial changes and planning for these should start now.

Corporation Tax: EU Court of Justice decisions have resulted in changes to UK corporation tax legislation on matters such as Group Relief (Marks & Spencer) and Controlled Foreign Corporations (Cadbury Schweppes) and further changes on Transfer Pricing rules are likely (following issues with Apple, Starbucks, McDonald’s and Fiat) which the UK will in future be able to overturn or ignore.

State Aid: Hard BRexit will mean the UK leaves the European Economic Area as well as the EU which will take the UK outside the EU requirements on State Aid. This will allow changes to the rules on several tax reliefs including the Enterprise Investment Scheme, the Enterprise Management Incentive scheme and the R&D Tax Relief scheme for SME’s.

Parent Subsidiary Directive: This protects dividends paid within EU group entities from withholding tax which may affect businesses with group interests in the EU and may also affect pension fund returns through its impact on listed entities.

Interest and Royalties Directive: This provides similar protection from withholding taxes on interest and royalties, which will be of significant interest to the financial services and gaming sectors in, for example, Gibraltar.

So Theresa May’s letter invoking Article 50 may well have no immediate impact on businesses however in the next two years in may well trigger an avalanche of the changes which may well be truly momentous.