Brexit deal sinks hope of UK tax haven
- Jan 18, 2021 | Richard Asquith
On the eve of the last stage of the UK’s exit from the EU on 31 December 2020, it struck a deal with the EU which included limits on direct tax policy. Whilst the UK will be able to remain one of the most tax competitive jurisdictions in the world, hopes of it becoming a post-Brexit tax haven are now sunk. This comes despite some promises from Brexit supporters of turning the UK into Europe’s Singapore – a low tax platform into Europe.
Brexit trade agreement keep UK tax in check
Under the Agreement, the UK is still free to compete on tax rates. But many tax avoidance and anti-money laundering restrictions were imposed by the Trade and Cooperation Agreement on UK tax policies to secure a goods tariff-free deal, including:
· UK will now have to abide by EU anti-tax avoidance Directives (laws), but will instead remain signed-up to OECD measures
· EU can use retaliation tariff mechanisms within the Agreement should UK give unfair tax subsidies to individual companies or sectors. For example, the UK had given reduced tax rates on patents registered in the UK, which was attracting significant investment from Germany. The UK eventually modified its tax subsidy in 2015.
· Option for the EU to impose anti-money laundering obligations on the UK if it’s much vaunted post-Brexit free port schemes act suspiciously
· The EU has also held back on granting UK’s financial services regulatory ‘equivalence’ in the EU and will likely use this as leverage to keep the UK in line with broad EU tax rules.
· A non-regression clause on EU country-by-country reporting standards which aims to give transparency to multi-nationals using cross-border tax rules to gain unfair advantages.