It is more than two years ago, on the 29th of March 2017, that the United Kingdom informed the European Council its intention to leave the European Union and the European Atomic Energy Community, pursuant to Article 50 of the Treaty on European Union. Given the political events in the UK, consequences of a hard BREXIT is one of the topics that is supposing more resources for British companies and, generally, for those from other countries with trade relations with the UK.

Negotiators from both, the European Union and the United Kingdom, entered into an Agreement regarding the UK’s withdrawal from the European Union (BREXIT) on the 14th of November 2018. A political declaration setting out the framework for the future relationship was also written.

NEXIA International Tax Conference

We have been able to address this topic in the NEXIA International Tax Conference we have attended to in Dublin in May 2019. General Director of the British Irish Chamber of Commerce, Mr. John McGrane, discussed concerns and uncertainties piling up within this hard exit option. Issues such as flights between Dublin and London (provided that this is the second most used air route), the hard border with Northern Ireland (what may inflame violence and terrorism problems that we had already considered as solved) and its impact in customs in these two countries were some of the topics discussed.

After that, we joined a professionals panel made of partners from NEXIA’s firms in different countries of the world: James Robbins from Cohn Reznick in the USA, Christof Zondler from Ebner Stolz in Germany, John Fisher from Smith & Williamson in Ireland, Alistair Shaw from Smith & Williamson in the UK, and we, Audalia Nexia, representing Spain. These professionals explained their current experiences with their clients in different countries during last months and how a hard exit would affect their tax situation.

What the Spanish Tax Agency considers

The Spanish Tax Agency is working to inform companies about its consequences. As the Spanish Tax Agency states, on the 11th of April 2019, the European Council decided as follows:

  •  The deadline expected according to Article 50, Paragraph 3 of the Treaty on EU, which was extended by means of the European Council Decision (EU) 2019/476, is extended again up to the 31st of October 2019.
  • On the 31st of May 2019, this Decision won’t be in force if the UK has not held elections to the European Parliament in accordance with the European Law in force, and if they have not ratified the Withdrawal Agreement on the 22nd of May 2019, at the latest.

UK’s exit shall be effective on the finally determined date, and they will be considered “a third country”. A transitional period ending on the 31st of December 2020 is contemplated in the Withdrawal Agreement; during this period, the Community Law shall still being in force in the UK regarding issues of internal market, customs union and Community policies.
Nonetheless, if the agreement was not in force at the UK’s exit, they would be considered a third country with no specific priority. This situation could significantly influence the organization and/or traders logistics flows; thus, it is necessary to value that impact and to get, as much as possible, a head start on necessary processes.

Custom rules

Custom rules may cause a true problem for manufacturing companies regarding their storage and production flows, since they are used to just-in-time production processes or to highly rotational and short-term storages. Companies transporting goods from and to the UK should already have adaptation and formalization plans in custom documents for operating with a third country, i.e., a non-European member.

Valued Added Tax

According to Valued Added Tax, the impact is really relevant: transactions carried out between the UK and Spain won’t be considered intracommunity transactions any more and they will be subject to customs formalities. That is, it affects the VAT accounting at customary import of goods if these come from the UK to Spain (Peninsula and Balearic Islands), unless company decides deferring VAT payment and submitting it on a monthly basis.
If VAT is quarterly paid, it may be changed by registering at REDEME (Monthly Refund Register), it would be subject to the Immediate Supply of Information on VAT (SII) and to every accounting and tax consequence.
Goods moved into the UK, exports, are free of VAT; besides, if a Spanish entrepreneur provides goods to British individuals, the regime of delivery at a distance does not apply.

What does happen between companies of the group?

In the European countries, economic transactions between companies of the group are regulated by the Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. The main aim of this Directive consists of holding dividends and other subsidiaries’ benefits distributed to parent companies free from withholds in the original country, and of eliminating parent company’s double taxation for that income.
We know that, based on this directive, both dividends distributed between countries in the EU, and interests and charges are free from withholds if they comply with some requirements but, what may happen in the UK stops belonging to the EU? Pursuant to Article 50, Paragraph 3 of the TEU, Treaties won’t be any more applied to countries leaving the EU as of the effective date of the Withdrawal Agreement or, in the absence thereof, two years after a withdrawal notification, unless the European Council unanimously decides, in accordance with that country, extending that term. Then, these directives would not be effective any more and we should check which rules apply; in this case, it would correspond to the Agreement in force signed by and between Spain and the UK to avoid double taxation.
According to that Agreement with the UK, dividends distributed between both countries would be submitted to a 10% withhold of the gross amount or to a 15% if they are paid as a consequence to income directly or indirectly derived from immovable property. However, dividends are free from withholds in case the company established in a country directly controls, at least, 10% of company that pays dividends, or in case effective payee corresponds to a retirement plan in the country where payee receives withholds.
If an effective payee lives in a country, for example in the UK, different from the country where this payee obtains interests, for example in Spain, then returns from credits of any nature or from participating in the debtor’s profits, or from bonds public securities, etc. are only taxable in the UK, and they are free from withholds in Spain.


Royalties, or any kind of amount paid in Spain to a British payee due to use or license of patent rights or royalties, trademarks, plans, allowances for industrial, trade or scientific equipment, etc. are only taxable in the UK, but they are not in the original country. Nonetheless, if the economic activity is carried out in a Permanent Establishment, then provisions in Article 7 on corporate profits, both as income or as expense, apply depending on the Permanent Establishment’s economic activity.
In general terms, but taking into account certain aspects, these transactions do not substantially differ from the accommodation of the Spanish directive; in this sense, the taxation system shall not be significantly altered and, thus, decisions related to businesses should not be altered.
According to our experience and given the scope of problems at Custom, we are aware of some British companies of the distribution and auxiliary automotive sectors that have been transferring their international activity far from the EU for two years (Spain, in this case), while saving their local activity in the UK.
We are also aware of some case in the Fintech sector, with current registered address in London, that has also been working side by side with the CNMV to obtain a license in Spain. This is not an easy matter and it entails important resources. The financial market does not allow a financial entity to work in the EU and to have residence in a third country. It must obtain operating license from the supervisory body, CNMV in our case.
October, that is, just after the summer time, will come soon and the political background in the UK, where they must vote for a conservative candidate to deal with this situation, avoids us being very optimistic. And market has not joined this situation yet.

Santiago AlióLinkedin_circulo y Juan Alberto UrrengoecheaLinkedin_circulo