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COVID-19 & Changes to Taxes in European Union Countries

September 29, 2020

As the world toils with unprecedented change and social challenges, European businesses face an ever-changing minefield of tax implications that restrict the physical movement of professionals across the continent.

COVID-19 has disrupted the natural order of European trade — challenging governments to adjust their policies on the movement of personnel, goods, finance and corporate activities between borders. While the uncertainty of recent events is extremely unsettling for business owners, we sat down with INAA Board Member, Adriaan Daniels, to shine some much-needed light over this pressing subject.

After graduating from the Erasmus University in Rotterdam in Economics and Tax Law, Adriaan began his tax journey with a fifteen-year stint in KPMG’s tax department where he served three years as the chairman at their Hague offices until 2010. He later went on to join VanOoijen Audit and Tax Advisors as a Tax Partner before commencing his engagements with INAA in 2012.

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Adriaan’s established reputation as a leading force in the world of tax planning, M&A and expatriates is reinforced by his steadfast commitment to sharing his expertise through international tax magazines and his extensive professional network.

Join us as we discuss Adriaan’s insights around how corporate tax rates in European Union are likely to change as a result of the pandemic and how organisations can respond to government measures to manage the long-term impacts of the coronavirus.

Defining ‘Home’

Adriaan identifies the tax obligations of expatriate professionals as a unique challenge throughout the pandemic. While the tax treatment of international professionals living in the EU is typically supported by established processes, the sudden relocation of people to their home countries has caused unexpected complications.

Adriaan explains how a number of clients require additional support to establish their tax position as unpredictable movements in recent months blur their residential status.

Whether it’s individuals unable to return to their place of work after visiting loved ones or people fearing they won’t be able to care for ill family members if they leave their home country, disrupted movements can impact residency status and an individual’s ability to work in a given place.

With this in mind, European employers must be particularly vigilant throughout this period to ensure international employees are supported with sufficient documentation and HR guidance to negotiate unforeseen complications.

Remote Working Status

Adriaan refers to a handful of European nations that have formed agreements with neighbouring countries to adjust to a growing remote workforce.

He refers specifically to the Netherlands, Germany and Belgium instigating a temporary agreement to simplify the tax treatment for individuals if their place of work is outside of their home country. For example, if an individual typically works in The Netherlands, but he/she has is required to work remotely from their home in Belgium, they will only pay tax in The Netherlands.

While this remains a temporary fix, governments across Europe are likely to strike similar agreements with neighbouring nations to soften the long-term economic blow of recent events.

Brexit Preparations Amidst COVID-19

UK companies looking to start a hub in Europe following the UK’s exit from the EU have faced several disruptions and roadblocks since the escalation of coronavirus in March 2020. Not only does the pandemic present an economic challenge for UK businesses, but it also prompts logistical costs as they adjust their supply chains to bypass additional trade tariffs and import duties associated with an independent United Kingdom.

While plans to establish a presence in the continent are still in full swing, Adriaan explains how growing concerns over relocating employees amid a pandemic have stalled certain developments and presented unforeseen delays. Namely, UK citizens looking to move and work on the continent are under pressure to commit before the completion of Brexit, while also navigating the socio-economic challenges of relocating at the height of a global pandemic.

Additionally, Adriaan argues that the growing dependence and familiarity with remote working will raise questions over the long-term suitability of physical office spaces in new geographies. He accepts that physical working spaces are likely to remain an important factor in regional expansion initiatives but believes companies will need to think carefully about how they adapt to changing attitudes at work.

Many UK companies had a vision for a physical presence in Europe that could look very different in a post-COVID world.

European Tax Avoidance Directive

Adriaan identifies the EU Commission’s introduction of mandatory reporting on aggressive tax planning as a critical consideration for UK corporations looking to expand into continental Europe.

He also explains how many organisations are hesitant to split their physical presence across multiple locations due to both the inefficiency of siloed teams and the tax implications of relocating. Drawing upon his in-depth knowledge of the Dutch market, Adriaan explains how many Netherland-based organisations are tempted by a move to the UK to bypass a 15% dividend withholding tax that doesn’t exist in the UK.

That said, the recent proposal of a conditional ‘exit tax’ by a member of Parliament in the Netherlands presents a strong counterargument to encourage Dutch companies to stay put. The private bill proposes that in the event of a cross-border merger, demerger, migration, or share-for-share exchange, Dutch companies would be subject to a substantial exit fee.

Adriaan explains how such a proposal would have been unthinkable ten years ago — demonstrating the unprecedented nature of recent events.

Embrace a Connected Europe with INAA

Adriaan concludes by arguing for a more connected and collaborative approach to European tax planning amid a world of uncontrollable events and unpredictable change.

He explains how negotiating the complexities of disrupted governments, an unstable business climate, unprecedented infrastructural challenges, and complex social change requires the united efforts of professionals across the accounting sector and beyond. Sharing knowledge and pooling resources is vital to embrace the future with confidence and clarity.

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