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Tax transitional law is published in the event of no deal Brexit

12/03/19

On Friday 8 March 2019, a draft decree was published containing transitional tax law in the event that the United Kingdom leaves the EU on Friday 29 March 2019 without agreement. The purpose of the transitional law is to prevent acute tax consequences and administrative burdens for the businesses and at the same time to limit the implementation burden for the Tax and Customs Administration.

The draft decree contains a general approval and a number of specific approvals. The policy decision will be adopted and published as soon as it is more or less clear that the UK withdrawal will take place on Friday 29 March 2019 without a withdrawal agreement having been concluded. The State Secretary expects this publication date to be Thursday 28 March 2019.

General approval

The general approval means that for the 2019 tax year the United Kingdom will be treated as if it were still part of the EU. This also applies to current financial years starting before 30 March 2019. This general approval covers income tax, payroll tax, payroll tax remittance reduction, payroll tax and national insurance contributions, corporate income tax and the General State Tax Act. We provide some examples.

Income tax

With the general approval, UK residents will be able to remain qualifying non-resident taxpayers for the entire 2019 tax year, thus remaining eligible for any personal income tax deductions and for the tax part of the income tax credits.

Wage tax

As a result of the withdrawal from the EU, citizens from the UK (and their family members) living and/or working in the Netherlands will in principle become foreign nationals within the meaning of the Aliens Act. In principle, this entails identification obligations and the application of the so-called anonymous rate. To prevent this, a transitional period of 15 months after the date of departure applies (i.e. up to and including 29 June 2020), during which the UK is deemed to still be part of the EU for such employees. This extension to 15 months is an exception to the general approval.

The approvals for the wage tax and income tax only apply to taxation and not to the levy of national insurance contributions, employee insurance contributions and income-dependent health insurance contributions. Please note this when filing a declaration for 2019.

Corporate tax

In the event of a no deal, the participation exemption would expire on 30 March 2019 if a Dutch private limited company holds an interest in a UK-based company and this interest represents at least 5% of the voting rights, but not 5% of the nominal paid-up capital. The general approval provides that the participation exemption only expires after the end of the financial year instead of during the financial year. Also for fiscal unities with a top or intermediate company in the UK (the sister and Papillon fiscal unities) that would end as a result of the UK withdrawal, the general approval may ensure that the break-up of the fiscal unity coincides with the time of the end of the financial year. In this way, many administrative burdens are avoided.

General State Tax Law (AWR)

The general approval for the AWR is mainly important for the subjection fiction. If the UK is no longer an EU Member State, the fiction of subjection and thus the conditions for the avoidance of double taxation will no longer be met. As a result of the general adoption, the UK will be considered as an EU Member State until 31 December 2019, thus in 2019 fulfilling the condition of the subjection fiction for the unilateral avoidance of double taxation.

Specific approvals

Specific approvals have been drawn up for, among others, the private motor vehicle and motorcycle tax (BPM) and the Tax Recovery Act. No specific national transitional law has yet been adopted for turnover tax and customs and excise legislation; this is expected at a later date. In mid-March, the European Commission will issue guidelines for goods that are on their way to or from the UK at the time of the UK's withdrawal from the EU. The draft decree will be supplemented on this basis.

What does this mean for you?

In many situations, you will for tax purposes be able to act as if the UK were still a member of the EU during 2019. Contact your PwC advisor to discuss what these approvals specifically mean for you.

Stay informed on the latest developments via the Brexit page.

Contact us

Jan-Willem Thoen

Jan-Willem Thoen

Senior Director, PwC Netherlands

Tel: +31 (0)61 002 95 71

Claudia Buysing Damsté

Claudia Buysing Damsté

Partner, PwC Netherlands

Tel: +31 (0)65 103 04 63

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