No-deal Brexit complicates tax issues for firms, says Deloitte

Issues

Professional services firm Deloitte says that the increasing possibility of a no-deal Brexit might raise a number of questions, including tax issues related to cross-border capital investments and company group restructuring, according to a press release sent to the Budapest Business Journal.

Deloitte Hungaryʼs Ferenc Póczak

While the House of Commons of the British Parliament has rejected Prime Minister Theresa Mayʼs proposals, the European Union is not showing much willingness to renegotiate the proposed agreement, so the possibility of a no-deal Brexit is growing more likely day by day. Deloitte argues that without an agreement, Brexit can result in many open questions and uncertainties in the business world.

"Regardless of the nature of the exit, the bilateral agreements for avoiding double taxation currently in force remain valid and applicable," says Ferenc Póczak, head of the international tax group of Deloitte Hungary. "The provisions of the agreements, including the provisions of the double taxation agreement between Hungary and the U.K. on income taxes, provide a relatively predictable framework in the areas covered by the agreements. In addition, the Hungarian tax burden on capital investment in Hungary by companies settled in the U.K. and other forms of their income from Hungary does not change."

However, as far as cross-border corporate mergers are concerned, the nature of transitional measures in a post-Brexit legal environment is still uncertain with respect to both the exit agreement and EU directives.

"In the absence of a specific transitional arrangement, EU directives and their national equivalents aimed at a uniform legal and tax assessment of intra-EU transformations will not be directly applicable," says Gabriella Kocsis, senior manager of Deloitte Hungaryʼs tax department. "Accordingly, in the case of cross-border mergers involving Hungary and the U.K., the legal feasibility of such mergers may be questioned, [while] the possibility of tax-free treatment of beneficiary transformations defined by the corporate tax legislation may be eliminated."

The press release notes that Brexit is also expected to affect the operations of both British branches of Hungary-based companies and branches of British companies operating in Hungary. In the case of Hungary, for example, only branches of companies based in the EU are currently exempt from disclosure, deposit and auditing obligations for their Hungarian reports. After Brexit, a U.K. company branch can only be exempted from these obligations if the U.K.ʼs deposit, disclosure and auditing obligations remain in compliance with the relevant EU requirements.

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