Brexit questions: Post-Brexit, will the UK implement ATAD?

12 October 2016

On 17 June 2016, the EU member states (including the UK) reached political agreement on the introduction of the Anti-Tax Avoidance Directive (ATAD).

ATAD seeks to ensure some consistency amongst the EU member states in the implementation of the OECD/G20 BEPS proposals by setting minimum standards for measures governing deductions for interest costs, hybrid mismatches, exit taxes and CFCs as well the introduction of a general anti-abuse rule (GAAR).

The agreement on the directive was reached only days before the Brexit vote on 23 June. EU member states will be required to implement the ATAD measures into domestic laws by 31 December 2018 so that they can take effect by 1 January 2019. That timetable finishes only shortly before the expiry of the two year negotiating period that would apply for Brexit if, as the Prime Minister has promised, the UK serves notice under Article 50 before the end of March 2017. So what effect will Brexit have on the UK’s implementation of ATAD?

At first sight, the answer is not very much. The UK is already implementing much of the OECD/G20 BEPS agenda on a faster timetable than would be required by ATAD – for example, new interest barrier rules and hybrid mismatch rules are scheduled to take effect in 2017 – and the detail of those rules is largely in excess of the minimum standards required by ATAD. Given that the UK already has CFC rules, which HMRC regards as BEPS compliant, exit taxes and a GAAR, it is likely that the UK will have substantially implemented the ATAD measures well before the December 2018 deadline.

The real question is whether the UK will take advantage of its new-found legislative freedom to relax some of these provisions in a post-Brexit world in order to improve the competitiveness of its tax regime. At present there is little sign of that. The Government appears to want to be seen as being at the vanguard of the implementation of the OECD/G20 BEPS proposals. But that is a policy inherited from the pre-Brexit government. We may have to wait until the Autumn Statement at the end of November for an indication of the new Chancellor’s views.