Withholding taxes for corporate groups after the end of the Brexit transition period

Following the end of the Brexit transition period, companies no longer have the benefit of automatic exemption from withholding taxes on payments between the UK and EU member states on dividends, interest and royalties under the EU Interest and Royalties Directive.

For payments made from UK companies to associated companies in EU member states, there should be no withholding taxes on payments of dividends, interest or royalties, because the UK has implemented the EU interest and royalties directive into UK law.

However, the position is not as straightforward for payments made from EU member states to UK companies. Since 1 January 2021, following the end of the transition period, withholding taxes are potentially due on payments of interest, dividends and royalties from EU member states to UK companies.

Relief for withholding taxes may be available in accordance with the double tax agreements between the UK and each member state. UK companies receiving payments from EU member states should therefore review all payments to ascertain whether there will be any irrecoverable withholding taxes, or if there is a treaty in place which reduces withholding tax liabilities, to ensure that any relevant claims or applications are made.

The position is likely to change in the coming months as the EU continues to scrutinise the Agreement and EU member states may introduce legislation on withholding tax on payments to UK companies.

How can Moore Kingston Smith help?
We can assist you with the following:

• Review cross-border payments of interest, royalties and dividends and determine where the tax treatment currently relies on the EU Interest and Royalties Directive.
• Analyse applicable double tax treaties to determine the tax treatment from 1 January 2021, based on current law.
• Advise on any other applicable potential tax mitigation strategies.
• Advise on making treaty claims and applications where necessary.
• Advise on potential restructuring of intra-group payments, structure and/or financing where projected tax leakage may be material, taking into account all possible claims.

Moore Global Network
As part of the Moore Global Network, we work closely with our colleagues throughout the EU. We share tax information and developments freely to enable us to provide the best advice to you and to ensure that we are kept up to the minute on tax developments which affect your business.