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UK's Hung Parliament Puts Some Proposals In Jeopardy

by Amanda Banks,, London

09 June 2017

The outcome of the UK's general election on June 8 could weaken the UK's negotiating position in Brexit talks, tax experts have said.

Earlier this year Prime Minister Theresa May called a general election to ensure that the UK would have the same Government in place for the full duration of the two-year Brexit discussions, which were triggered in March.

The election was called to consolidate the Conservative Party's hold over UK politics. However, the opposition Labour Party did considerably better than expected, and the Conservative Party lost seats, despite gaining seats in Scotland.

The Conservative Party now lacks a parliamentary majority.

James Ross, Tax Partner at McDermott Will & Emery, said that the result "increases the likelihood of a 'soft' Brexit, so groups worried about losing the benefit of EU Directives to minimize withholding tax on intra-group interest, dividend, and royalty payments may want to hold fire before unwinding their UK holding company structures."

May has said earlier that the UK would push for a "hard Brexit," which would involve a total separation of the UK from the EU, including from the Single Market and Customs Union. A "soft Brexit" would instead see the UK negotiating to hold on to some elements of its existing relationship with the EU while still dropping its membership of the bloc.

Discussing the likelihood that a coalition will be formed, Ross said that whatever the structure of the new government, the corporate tax changes that were dropped before the election are likely to be resurrected, which means that large groups will have to grapple with new restrictions on the deductibility of interest and on the carry-forward of tax losses.

"Meanwhile, the election result places plans to reduce corporation tax to 17 percent from 2020 'in doubt,'" he said.

TAGS: trade treaty | United Kingdom | agreements | trade | European Union (EU) | Europe

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