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Much has been said on the dangers of Brexit, while the possible consequences following Great Britain's decision to leave the EU are still being assessed.

There is a host of fiscal implications connected to the UK's desire to leave the EU, as emerged from the referendum. Although, pursuant to article 50 of the Lisbon Treaty, the effects of this decision are not immediate (presumably they will manifest in at least a couple of years), the possible and probable fiscal consequences arising from this choice must be considered with a view to fiscal planning.

Setting aside the possible consequences from an indirect fiscal front, which will certainly have a wider scope (think about VAT schemes and the re-introduction of customs duties), the main impact regarding direct taxation should concern the application of the Parent-Subsidiary Directive relating to the payment of dividends.

According to the provisions of article 27-bis of Presidential Decree no. 600/1973, which absorbed (as part of the national taxation system) directive no. 90/435/EEC, for the profits distributed by a company residing in a state of the EU, which meets specified requirements, the legislator has predisposed special favourable provisions allowing for the non-application (or refund) of withholding tax.

Following the UK's exit from the EU, this preferential regime could no longer be applied, since the subjective requirements set by the regulation would no longer be satisfied, such as the residence in the European territory of the company distributing the dividends.

As a consequence, the distribution of dividends should be subject to conventional rules, in case of agreements against double taxation drawn up between the United Kingdom and the State where the company that pays out the dividends resides.

Also worth considering is that, after the UK leaves the EU, also the provisions of paragraph 3-ter of article 27 of Presidential Decree no. 600/1973 would no longer be applicable - as part of relations with Italy. This article requires that, in the case of an Italian company paying profits to companies and bodies subject to corporate tax in EU member states or in States adhering to the Agreement on the European Economic Area, a withholding tax is applied to the tune of 1.375%. As a consequence, in such cases, article 10 of the Convention between Italy and the United Kingdom for the avoidance of double taxation should be applied, which states that the dividends paid by a company residing in a Contracting State to a resident in the other Contracting State are taxable in said other State.

Nevertheless, these dividends may also be taxed in the Contracting State where the company that pays the dividends is a resident and in compliance with the legislation of said State, but if the recipient of the dividends is the beneficial owner, the tax applied may not exceed 5% of the gross amount of the dividends if the beneficial owner is a company that directly or indirectly controls at least 10% of the voting power in the company paying the dividends; or 15% of the gross amount of the dividends in all the other cases.

However, in addition to the negative effects, there is also the other side of the coin to take into consideration: Brexit may also pose different scenarios and opportunities worth seizing. The necessity (more urgent than ever) to internationalise companies, the new era of transparency, the difficulties of the financial markets and the deficiencies of traditional instruments in addressing the need to protect assets, are some of the subjects that, essentially, were not really influenced by the result of the vote on 23 June. It is exactly this awareness that led Jordans Trust Company Limited to establish its new offices in Milan at the beginning of October. As a strong and confident sign that, regardless of any possible consequence of Brexit, it gives a concrete response to these uncertain times and strengthens the core relationship between customers and professionals.

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 Giacomo Previtali

Giacomo Previtali

Studio Previtali
T: +39 02 9109 4800

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