BREXIT: Tax after the EU referendum
We recently saw the UK people vote in favour of leaving the EU, turning their backs on 43 years of being part of the largest economic grouping in the world. This will have major economic and political consequences for the UK, the EU and for the global economy. We are moving into a world without a road map. The priority must now be to bring together the different factions in the UK and to minimize economic uncertainty.
EU leaders will also have to consider carefully the message that BREXIT sends to them, which is that citizens, not just in the UK, want a different type of Europe: one that is more responsive to their needs, that helps them deal with the pressure of globalisation and which is more accountable. BREXIT is not, as some have forecast, going to lead to a break up of the EU, but it will, in the long run, lead to a different type of Union, possibly one where more power is passed back to national parliaments.
From the taxation perspective, the UK will have to reconsider the operation of its VAT: an area where there was a common approach by all Member States.
Some have suggested that the UK support for BEPS and for the tax transparency agenda will weaken. That is unlikely: much of the actions in these areas have taken place in the G20 and the OECD and the UK has very much led the debate in these fora. The UK will however, have more freedom to shape its tax system to reflect its own priorities. It will no longer have to consider the views of the European Court of Justice or the different constraints that arise from EU Directives or Conventions. However, my expectation is that at least for the transitional period, we will not see any major initiatives to reshape the UK tax system, although the new government has confirmed that it will aim to reduce the corporate tax rate to 15 percent and will examine other tax measures to make the UK economy more competitive.
The impact of BREXIT on the EU tax debate is less clear. Some have suggested that without the UK, we will see a push towards more tax harmonization. I do not share this view, since as long as the consensus rule remains, there will be many EU States (States that have found it convenient to hide behind the UK), which will block such moves. What the EU now needs to do is to push forward with tax measures, which will promote the single market, enable financial centres in Europe to gradually take over the role of London and take measures, which will make EU companies more globally competitive.3