Company A is the UK ultimate holding company of a trading group with intermediate holding companies in France and Germany and operating companies in other EU jurisdictions. Company A licences its IP to a Dutch subsidiary.
- The EU Interest & Royalties Directive ensures the interest payments on loans advanced to the DE and FR sub-holdCos are free of withholding tax (WHT).
- Similarly royalties payable by the NL subsidiary to the UK parent under the IP licensing agreement are free of WHT.
- The EU Parent – Subsidiary Directive ensures there is no WHT on “dividends” paid by underlying EU subsidiaries to the UK parent.
Once the UK leaves the “Common Market” the UK will not benefit any longer from “zero” WHT on payments of dividends, royalties and interest currently available under the EU Directives mentioned in the three situations above. In the absence of “equivalent” agreements with the EU, the UK will have to fall back on bilateral DTAs. The DTA with each of the EU trading partners will need to be considered and WHT under such DTAs can only be “minimised” and not automatically reduced to “zero” as currently available under the said Directives.
Tax losses residing within the subsidiaries may cease to be available for surrender to Holdco A under the UK’s group relief rules. Planning considerations may involve inserting intermediate holding companies in the structure or relocating Holdco A.