The negative outcome of the UK referendum will potentially have a radical impact on the UK tax system, as European law impacts UK tax law both as regards to direct and indirect taxation:
- UK direct taxation is subject to a number of EU directives, EU principles stemming from the Treaty on the Functioning of the European Union (TFEU) and the jurisdiction of the Court of Justice of the European Union (CJEU). In particular, UK domestic legislation cannot conflict with principles of EU law, such as the “four fundamental freedoms” and EU State aid provisions.
- VAT, as well as customs and excise duties, are all governed directly by EU legislation, which means that both the EU legislation and the CJEU case law are the main sources of UK indirect tax legislation.
- Membership of the EU gives UK companies access to the internal market (made up of 28 Member States) and to a wide network of preferential trade agreements between the EU and third countries.
Nevertheless, it is difficult to assess in detail how the Brexit will impact UK tax legislation in the near future, as this will mainly depend on the terms of any post-Brexit agreement that will be concluded with the EU.