How has the vote to leave the EU impacted on your business?
It has now been a month since the UK voted to leave the EU, and during this time we have been speaking with many of you about how Brexit may impact your business. In this article we give a flavour of some of the conversations we have had.
We are now starting to work with clients on understanding in more detail the specific (tax) impact of Brexit. This includes a piece of work we have recently completed for an inbound investor which has recently set up a UK platform to invest into Europe. We have reviewed the holding structure of each of the investments to ascertain the ‘worst case’ impact of Brexit on the taxation of dividend flows – i.e. the withholding tax rates under either domestic law or the relevant double tax treaty, assuming the European parent/subsidiary directive is no longer available. Fortunately for this client, once we looked at the specific detail of the local legislation and the tax treaties, they should not actually suffer any material disadvantage as a result of the specific combination of locations and the nature of the underlying business activity. We have advised them to repeat this exercise in advance of all future investments to ascertain the optimum holding structure – although this will of course need to be balanced with the recommendations of the OECD’s base erosion and profit shifting (BEPS) Action 6 (treaty abuse).
Another example is a UK group, which predominantly sells into the UK market in sterling. However, its costs of sales are mainly USD denominated, and as a result of the falling value of sterling since 24 June, it has suffered a material impact on its profit margins. We are working with the client to consider its restructuring options - through a combination of optimising natural hedges within its existing business, and introducing new regional trading hubs to proactively manage currency volatility going forward.
As a third example, KPMG in the UK’s tax practice has joined forces with colleagues across our advisory group to deliver a cross-functional workshop to a group with operations spanning Europe. They have a variety of concerns relating to Brexit, and top of their list is how to retain access to the European single market, whilst balancing regulatory and business requirements. We will be working with them to assess the impact of the various Brexit models and put forward potential alternative structures which can then be assessed against the fact pattern of the organisation, the future growth plans for the business and of course the post-BEPS tax landscape.
In addition to the many discussions we are having directly with clients, we have also just launched a Brexit questionnaire with International Tax Review. Please do take a few minutes to complete this and we will feedback our findings to you later next month.
If you would like to discuss the impact of Brexit on your business in more detail, please do get in touch with your usual KPMG tax contact or Tim Sarson.