The simplest and most straightforward answer would be: it depends on how the Brexit deal crystallizes.
As a Dutch tax company, we deal with the UK mainly because my clients: rely on the UK as being the gateway to Europe; companies have business in the UK and or from the UK in the Netherlands.
Gateway to Europe
From a holding company jurisdiction, typically foreign non EU-companies want to be in the EU. They would like to have a gateway to Europe (market of 500mio people). The UK, with its 65mio people, does not provide a genuine alternative.
In essence, I would think that countries which would be good alternatives for the UK would be, Ireland and the Netherlands. Ireland because it has Anglo-Saxon culture, 100% native English speakers and they have strong ties with multinational companies. In favor of the Netherlands would be the ease to maintain substance with the seaport of Rotterdam and airport of Amsterdam. With a great advantage you have a gateway to Europe even in a post-BEPS era.
Dutch tax advisory
If the UK would join the EEA and this transition would be seamless, the only noticeable impact it would have would be in the field of customs and VAT. Dutch tax advice on EU restructurings, the fall- back scenario comes from the directives: parent-subsidiary; interest and royalties; merger and so on. The fundamental freedoms prevent double taxation and discrimination. It even protects Dutch residents in case of national legislation which is implemented as a result of the directives. In case the UK decides it would not like to join the EEA, then the only protection it has from double taxation would be the NL/UK tax treaty, which is not very beneficial.
From a Dutch perspective, the Dutch dividend withholding tax would be mitigated to 5%, under the UK/NL tax treaty. The 5% leakage is substantial because in case the participation exemption applies in the UK, there would be a net cost of having the holding company when repatriation of profits via dividends is foreseen. This would eliminate the UK from being a proper holding jurisdiction from a Dutch perspective. We are currently looking at alternatives such as Cyprus, Slovakia, Hungary and Latvia.
For UK inbound investment the Netherlands is still a good jurisdiction based on the UK/NL tax treaty. Interest and royalty withholding double taxation are avoided in the tax treaty. The UK does not have dividend withholding tax. This makes the Netherlands a good location to hold a UK company.
EU Tax Avoidance Package
The EU is working on a Tax Avoidance Package. Now that the UK will no longer a member of the EU they can aggressively monetize the fact that they do not have to limit tax avoidance. The UK would be able to provide state aid, tax breaks and other tax incentives to keep the UK attractive for businesses. This might compensate for the uncertain political environment, reduced market and double taxation which will be inevitable.
I hope that the UK transition from EU country to a separate country takes place within a short time frame, so we can get used to the new reality. Some say hope is postponed disappointment, I hope not.
Written by Hendrik – Jan van Duijn.