Need to know — UK exit from the European Union

Published on: 29 Mar, 2017

On 29 March 2017, the United Kingdom’s ambassador to the European Union delivered a letter to the President of the European Council giving formal notice under Article 50 of the Lisbon Treaty of Britain’s withdrawal from the European Union. 

EU law includes several directives, transposed into the law of each member state, providing relief or deferral of (direct) income tax on various transactions, typically between members of a group incorporated in different member states. For both UK entities and groups with British operations, triggering Article 50 raises the question of whether there are any immediate financial reporting effects of the possible withdrawal of those reliefs. 

At the commencement of this unprecedented process, significant uncertainty exists over the precise steps (both at a European Union and individual member state level) to be followed before withdrawal of the UK from the EU takes effect. In addition, the legislation enacted at a member state level may not be uniform across the EU, may in some cases be supplemented by bilateral agreements and is unlikely to address explicitly the effect of withdrawal of a member state. As a result, prior to negotiation between the UK, the European Council and potentially individual member states, the form that any change in tax law might take is uncertain. 

Given these layers of complexity, it is difficult to conclude that a change in tax law has been ‘substantively enacted’ as that term is applied in IAS 12 Income Taxes on triggering of Article 50, or what effect any such change would have on current and deferred tax balances. So overall there is a significant level of uncertainty about the future tax obligations of groups currently taking advantage of reliefs based on the application of EU law to UK companies.


Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.