Immediate tax impact from Brexit?
July 12, 2016
PE backed businesses are typically international and unless there has been care with loans provided to and from overseas entities denominated in overseas currencies, there will be forex (fx) movements arising on inter-company debt.
With the recent 10% weakening of sterling against Euros and dollars, if the UK is in a net receivable position, the UK will be sat on large fx gains. These gains are typically subject to UK tax, so groups may find they have unexpected large tax bills. Some limited action is available to try and mitigate the fx gain depending on their net exposure, availability of elections etc, otherwise the group needs to consider if they are able to offset the gains against other tax deductions under the various rules. Groups should also consider revised payments on account to avoid interest on late paid tax.
Conversely, where the UK is in a net payable position, this weakening of sterling will have given rise to large fx losses. If you thought that sterling was at an all time low, and depending on your overall exposure, funding requirements, etc then the UK could refinance and the loss would be available under the rules for offset.
With such a volatile market, care is required to monitor internal fx costs as these can give rise to actual tax costs.
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