The UK’s departure from the EU – BREXIT – took effect on 31 January 2020 under the terms of the Withdrawal Agreement agreed with the EU in October 2019. As a consequence, the UK has left the political institutions of the EU and entered a transition period. During this transition period (until 31 December 2020), EU regulations will in principle continue to apply in the UK. In the course of the next months the UK government and the EU will negotiate a comprehensive trade deal.
The BREXIT may have an impact on the treaty clearance for payments between Switzerland and the UK and puts treaty claims at risk based on the Swiss-US DTT:
Payments from the UK to Switzerland / from Switzerland to UK: replace 823C with 823B
BREXIT should not change the status quo of the WHT treatment of interests, royalties or dividends from Switzerland to the UK if the company already applies the Swiss-UK DTT. The DTT grants zero rates for dividend payments if a minimum direct or indirect shareholding of 10% is fulfilled and a valid Form 823B approval is in place. In case a taxpayer still uses a Form 823C approval, it is recommended to apply for the treaty clearance based on Form 823B (if not already done). For interests and royalties, full WHT relief/refund should apply under the treaty as well. For dividend payments from the UK to Switzerland, no WHT applies under UK domestic law.
Swiss US Double Tax Treaty – BREXIT puts treaty claims at risk
Many UK headed groups apply the Swiss US double tax treaty for payments from a USCo to SwissCo for interest and royalties while relying on one of the limitations on benefits (“LOB”) test through their UK parent or ultimate UK shareholders (e.g. relying on the derivative benefits test). Such test is met if the ultimate shareholders are based in EU or EEA. With BREXIT, a UK person or company no longer qualifies as EU or EEA thus respective US DTT clause no longer applies unless another LoB would be met.
We have just heard that there is no plan from US Treasury on offering a special discretionary grant regime for BREXIT. Thus, groups relying on their ultimate UK shareholders to apply the Swiss US treaty, may no longer be treaty protected. The US Swiss DTT has a clause where tax payers can claim for discretionary grant by US treasury to qualify for the treaty. However, this is a lengthy procedure and has not been used very frequently. We hear that there is informal hope that US Treasury may apply an expedited approach in these cases, but it remains a standard case of discretionary grant. Further details will be shared once guidance (if any) should be released by US Treasury.
In case of any questions, please reach out to Christoph Pauli, firstname.lastname@example.org