Consequences in CIT and PIT of the non-contractual exit of the United Kingdom of Great Britain and Northern Ireland from the European Union
The Ministry of Finance, on October 11, 2019 published information on the possible consequences in income taxes of the non-contractual exit of the United Kingdom of Great Britain and Northern Ireland (‘the United Kingdom’) from the European Union (the so-called Brexit). In this case, there will be no transitional period to enable EU entities and entities resident in the United Kingdom to adapt, among which there are capital or family ties, to the capital and restructuring operations carried out between them.
It will be recalled that entities being tax residents of the European Union Member States are subject to many tax regulations in force at the European Union level that allow the implementation of the principles of the European Single Market (including the free movement of capital). These regulations include:
- Council Directive 2003/49/EC of June 3, 2003 on the common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, based on which, after meeting certain conditions, interest and royalties payments made between associated companies of different Member States are exempt from withholding tax (Article 21 of the CIT Act);
- Council Directive 2011/96/EU of November 30, 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, on the basis of which dividends transferred between subsidiaries and parent companies of different Member States are exempt from tax (the provision of Article 22 (4-6) of the CIT Act);
- Council Directive 2009/133/EC of October 19, 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, on the basis of which taxation of possible profits gained on restructuring operations is deferred until their implementation. This Directive has been implemented through a number of provisions of the CIT Act concerning tax revenues and the costs of obtaining them.
In case of a non-contractual Brexit the regulations of the CIT Act implementing the tax privileges contained in the above-mentioned directives will be terminated in respect of tax residents of the United Kingdom. From the day of Brexit, the revenues generated between Polish tax residents and entities from the United Kingdom being covered by the above directives will be taxed on the general rules with regard to relevant regulations of the double taxation agreement concluded with the United Kingdom.
In the case where upon Brexit the United Kingdom remains a member of the European Economic Area (‘EEA’), the tax preferences for residents of EEA Member States will still be applicable.
From the day of non-contractual Brexit, individuals will not be able to benefit from the tax preferences concerning joint taxation of the income of spouses and single parents.
If, upon Brexit, the United Kingdom remains a member of the EEA, the tax preferences for spouses and single parents will continue to apply.
Given the likelihood of a non-contractual Brexit, Polish entities should prepare for tax changes concerning the settlement of transactions made with the United Kingdom tax residents.
Dorota Dąbrowska, Tax Advisor, ATA Tax Sp. z o.o.
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