Assess your supply chain
As of 29 March 2019, after midnight, goods may be blocked at the UK border. A no-deal Brexit, in principle, implies that as from that date (considering there would be no transition period), goods that are being dispatched from Belgium to the UK will be submitted to export procedures in Belgium and subsequent import procedures in the UK. Apart from the red tape that comes with it, this may result in import duties to be paid and therefore extra costs. Similar procedures will apply in the reverse situation where goods are being dispatched from the UK to Belgium.
It is therefore strongly recommended to already map out your logistic flows in relation to any trade with the UK and focus on preventive measures to avoid supplies or even production being jeopardised and to assure the possibility of charging any additional costs to your customers.
The impact of a no-deal Brexit may be less substantial for the service industries, unless staff is being sent to the UK for a certain assignment. However, invoicing and reporting procedures will in any case need to be adjusted as the services rendered will no longer be considered to be ‘intra-Community services’ for VAT purposes. Naturally invoicing and reporting procedures also need to be assessed in case goods are being dispatched from and to the UK.
Review your group structure and assess potential double taxation issues
Will your group structure still be fit for purpose after Brexit?
The business impact of a hard Brexit on a group’s direct tax position will primarily affect withholding taxes on intercompany dividend, interest and royalty flows between UK and Belgian companies. Where these payments are currently exempt from withholding tax under local implementation of EU directives in both countries (with limited administrative burden one might add), this may no longer be the case after a hard Brexit scenario. Not so much in the sense that withholding taxes will immediately apply, but absent these directives, nothing prevents either government (e.g. for budgetary reasons) from abolishing its domestic withholding tax exemptions and/or renegotiate the Belgian/UK double tax treaty. Even if the current treaty exemptions would remain effective, obtaining a treaty exemption is generally considered to be more aggravating and time consuming compared to their domestic equivalent.
Thoroughly reviewing your group structures, particularly focussing on holding and intra-group banking/financing activities and/or ownership of royalty generating intellectual property is therefore highly recommended to avoid future withholding tax leakage.
Post Brexit, European tax dispute resolution mechanisms (EU Arbitration Convention and last year’s Council Directive2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union) may no longer apply to avoid double taxation with the UK. Instead, tax payers may have to fall back on the mutual agreement procedures under the treaties which do not necessarily impose a binding obligation on the contracting states to eliminate the double taxation (to be determined on a case by case basis).
With that in mind, groups should carefully review their tax risk profile and expected outcome of double taxation disputes involving the UK to avoid unpleasant surprises.
Obviously, for Belgian based groups with subsidiaries in the UK, these considerations should not only be viewed from a pure Belgian-UK angle but in a wider perspective for all their EU subsidiaries which engage in transactions with the UK.
Plan for your workforce
The UK will no longer be covered by EU social security regulations
In a no-deal Brexit scenario where the UK does not join the EEA, issues will arise regarding the social security rights of workers (inbound and outbound mobile workforce, multi-state workers, commuters and business travellers), both for the past (already-acquired rights) and the future (risk of discrimination), as the equality of treatment, social security benefits and health care rights shall no longer be protected.
There will be no guarantees regarding the avoidance of double contributions for employees working in the UK and one or more EU member states, as long as the UK has not signed bilateral social security agreements with each of the individual EU members states.
Cross-border pension schemes and workers will no longer be governed by EU legislation
UK or EEA nationals who have spent periods living and working in other member states would be disadvantaged in case of a ‘no deal’ due to the additional administration of having to apply for their pension in several states instead of just their state of residence. And they could potentially find their pension rights significantly reduced. There is, however, a good chance, that much of the existing EU-derived legislation (protection for scheme members; minimum guarantees in case of insolvency of the sponsoring employer; anti-discrimination rules) will remain in place.
Free movement of persons between the UK and other member states will be restricted
After Brexit, employers will need to consider the impact on UK nationals currently working in their business and their recruitment policies, and on EU nationals currently working in their UK businesses. It is possible that EU workers in the UK will be subject to the same conditions and restrictions as migrant workers from outside the EU. Similarly, people from the UK who want to work in EU member states may need a valid work permit or a long-term residence permit to be able to do so.
Over time, UK employment and social security law may deviate from European legislation and the rulings of the European Court of Justice
The ‘Great Repeal Bill’ will import EU directives into UK law on Brexit. However, over time, British lawmakers will then be free to deviate from European legislation and the rulings of the European Court of Justice. This may affect (amongst others working time, temporary staff, transfer of business/collective redundancy, family-friendly measures, including pregnancy and parental leave, minimum wage, stipulations regarding equality and the prohibition of discrimination, ...
Although such deviations could make the general organisation and set-up of international or cross-border employment more complex, it is important to note that in many cases UK regulations have a larger scope and offer more protection than the European minimum standards.
Personal tax issues
The tax rules governing internationally mobile employees or private individuals who receive foreign source income are not directly imposed by the EU but have been written down in bilateral tax treaties between independent countries. Those are not affected by Brexit.
However, based on the 4 fundamental freedoms included in the treaty of Rome, the ECJ has adopted extensive jurisprudence aiming to ensure that EU countries will not enforce stricter (tax) rules on residents of EU countries than on their own residents or introduce tax rules that are discriminatory against foreign residents.
A no-deal Brexit will lift the protection against unequal tax treatment that UK residents currently have in Belgium and the other EU countries where they work. Likewise, Belgian (or EU) residents working the UK, will no longer be protected by any discriminatory tax rules the UK may impose.
In such a scenario, companies operating a tax equalisation program may see the cost of such program increase post March 29, 2019.
Our Tax and Legal experts are available to discuss with you what specific actions need to be taken to keep your business up and running without losing out to your competitors in adjusting to the new tax and legal landscape after the UK will have withdrawn from the EU.