BREXIT: New ways of business for intragroup relationship

BREXIT: New ways of business for intragroup relationship

BREXIT: New ways of business for intragroup relationship 1500 981 Exponens International

BREXIT: New ways of business for intragroup relationship

Published on 02/08/2021

Since 1st February 2020, the United Kingdom (UK) has withdrawn from the European Union (EU) and has become a “third country”. The Withdrawal Agreement provided a transition period until the 31st December 2020. In 2020, nothing changed.
The EU and the UK came to a last-minute trade deal on Christmas Eve, avoiding the hardest of all potential Brexits. But major tax uncertainty remains, waiting comments from French tax authorities. For now, French authorities answer some of our questions via a FAQ updated following the trade deal of December 2020.

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FRENCH FISCAL INTEGRATION: CHECK THE HOLDING SCHEME

If a UK company is today a parent company or an affiliate company in the legal organisation chart, you may lose the benefit of the French tax integration. We spotted 2 scenarios, if :

We can advise you to check the ownership chain of your French fiscal group to avoid the consequences of the group termination.
By French administrative tolerance, when fiscal year was started in 2020, French groups can still apply fiscal integration until the end of the fiscal year, even if the UK is no longer in EU since February 2020.

DIVIDENDS FROM FRENCH COMPANIES: WHITHHOLDING TAX

The EU Parent Subsidiary Directive ceased to apply in 2021 for UK entities.
But UK/FR Tax Treaty will continue to apply. The tax treaty will cap the French withholding tax to 15% (Article 11.1.b), and Article 11.1.c says that if the UK parent company pays UK corporate tax and holds at least 10% of the French company, the French withholding tax is reduced to zero. There might be no impact in 2021 or limited to 15%.

DIVIDENDS FROM UK COMPANIES: FRENCH INCOME TAX IMPACT

By French administrative tolerance, when fiscal year was started in 2020, French companies can still opt for the 99% exemption of the UK dividend received, if they comply with some condition, such as holding at least 95% of the UK subsidiary.
Otherwise, for fiscal year started in 2021 or companies holding less than 95%, the French company could opt for the 95% exemption of UK dividend under other conditions, such as holding at least 5% of the UK subsidiary. But you will lose the possibility to deduct the tax credit if there is withholding tax in UK.
From 2021, you will decide between the tax credit equal to the tax withheld in UK (Article 24.3.a.ii of the tax treaty) or the 95% tax base exemption.

SERVICES FROM FRENCH COMPANIES: NO BREXIT IMPACT

The rules about the supply of services are not affected by the Brexit. The withholding rules are generally still exempted thanks to tax treaty (Articles 7, 12 & 13). The exit of the UK from the EU should have no impact.

INTERESTS AND ROYALTIES FROM FRENCH COMPANIES

The payment of interests and royalties by a French company to a British company, will not be affected by the UK exit from the EU. In fact, interest is not subject to withholding tax in France and royalties could benefit from an exemption from withholding tax on the basis of the tax treaty (Article 13).

The information related to the practical consequences of the Brexit given by French tax authorities are very parsimonious. Thus, we are still monitoring the announcements by France and EU authorities. In the meanwhile, we are available to discuss any issues you may face at this stage of the Brexit.

Related insights:

Brexit – New ways of business for UK company with no PE in France – Read article
Brexit – UK R&D expenses and French R&D tax credit – Read article
Brexit – New ways of business with UK for flow of goods – Read article
Brexit – New ways of business for representative offices – Read article

For more information: