From January 2021, once the Brexit transition period has ended, EU directives will no longer have a legal effect in the UK. One such directive that corporate groups need to consider is the EU Interest and Royalties Directive.
Currently under this directive, companies have the benefit of an automatic exemption from withholding taxes on payments between the UK and EU member states on dividends, interest and royalties.
Although written by the EU, the UK has adopted this directive into UK law, so that there should be no withholding taxes on these payments made from UK companies to associated EU member states.
However, the reverse (payments from EU to UK companies) will unfortunately not be as straightforward.
From 2021 withholding taxes will potentially be due on payments of interest, dividends and royalties from EU member states to UK companies, unless those countries bring in new legislation contrary of the EU directive or they have a double tax treaty with the UK that provides relief from withholding taxes.
Any UK company that receives payments from other EU member states should therefore review all payments to ascertain whether there will be a change resulting in irrecoverable withholding taxes being suffered.
Our tax team work with our colleagues in the Alliott Global Alliance throughout the EU to help review the future treatment of these payments and any potential withholding taxes that may be suffered. We can help make relevant treaty claims and provide advice on mitigating tax liabilities and potential restructuring.
Please contact us for more information on how we can help.