Industry leaders from across Kent gathered at Crowe UK’s Maidstone office for the firm’s latest International Trade event where updates on a range of international trade developments were provided. The event was hosted by Crowe UK’s Head of Manufacturing – Johnathan Dudley – and included presentations provided by Crowe UK’s Customs team, Ian Worth, Jamie McLeod, and the firm’s ESG lead Alex Hindson.
Bringing together 30 clients for insightful discussions on critical topics as well as highlighting emerging trends and requirements in relation to ESG, the event explored the opportunities and challenges on Carbon Border Adjustment Mechanism (CBAM) and the implications of Russian sanctions.
CBAM
The EU CBAM is an environmental policy measure that will impose a levy on carbon-intensive goods imported into the EU. Participants engaged in the complexities surrounding CBAM, exploring its potential impact on international trade and the strategies businesses can employ to navigate this evolving landscape. The discussions provided valuable insights into the challenges and opportunities presented by CBAM for businesses operating on a global scale.
Businesses exporting goods such as iron, steel or aluminium products to the EU must be prepared to provide data on the emissions embedded in their products to their EU customers, who will be obliged to report this information to the EU authorities. Businesses must first understand the extent to which their exported goods are in scope of the measure and consider how they will obtain and provide the relevant data. Businesses acting now will be well prepared for the likely introduction of a UK CBAM, which is reported to have been earmarked by the Government for introduction in 2026.
Russian sanctions
The event also addressed the intricate web of Russian sanctions, shedding light on the latest developments and their implications for international trade. Ian Worth and Jamie Mcleod, delved into the nuances of compliance and risk management, equipping attendees with the knowledge needed to navigate the ever-changing regulatory environment.
The most recent wave of Russian sanctions introduced by the EU and the UK concerns a prohibition on the import of iron and steel products containing Russian inputs, which have been processed in third countries. The measure has had a significant impact across industries, with the importer of such goods obliged to evidence the non-Russian origin of the steel and iron inputs. Businesses must consider the extent to which they are impacted, and for products in scope, consider how they can meet the evidence requirements. Non-compliance with such sanctions is a criminal offence, risking delays and seizures, as well as more serious ramifications.
Withholding taxes: actions for groups with UK and EU members
Another cause of frequent confusion for businesses is the correct tax treatment of withholding taxes.
Tax is often withheld when interest, royalties or dividends are paid by a company in one country to a recipient in another. This means that the recipient receives the net amount after tax has been deducted, which can create cashflow problems and delays in receiving any credit for the tax withheld.
Some companies that previously did not suffer withholding tax (WHT) on EU group dividends are unaware that the EU Parent Subsidiary Directive (PSD) and the Interest and Royalties Directive (IRD) disappeared for UK companies during 2021.
In many, but not all situations, the UK’s double taxation network with EU countries will enable groups to mitigate the WHT requirement. Treaty reliefs are not automatic and generally must be applied for from the local taxing authority. This process can be time consuming and, in some situations, to prevent WHT occurring, payments may need to be delayed.
The UK domestic law does not currently impose any obligation to withhold tax on dividend payments.
For dividends paid to the UK by companies’ resident in the EU, the applicable double taxation treaty will need to be considered to see if it totally exempts dividends from WHT or whether it imposes a limit on the level of WHT that can be deducted.
For royalty payments to the UK, and for interest payments made to and from the UK, the quantum of tax to be deducted at source will be determined by the level set under domestic law and in the appropriate double taxation treaty between the UK and the EU member state. In many cases, there continues to be full exemption from WHT.
To benefit from tax treaty rates for dividends, royalties and interest an application form will usually need to be completed and stamped by the UK and overseas taxing authority to enable the payer to make the payment at a reduced or exempted treaty rate. In many cases the form also doubles up as a WHT reclaim form.
The first step for any business potentially impacted by withholding tax is to review and identify existing dividends, interest and royalties that are being paid cross border with the EU. Consideration should be given to what the double tax treaty position will be for each; the WHT applications already in place, whether new treaty forms are required in the jurisdiction of the paying company and whether it may be beneficial to reorganise the group to reduce ongoing costs and improve profitability.
Future International Trade events
With a focus on fostering collaboration and sharing expertise, Crowe UK’s International Trade Event, which takes place several times a year, continues to be a valuable platform for businesses to gain a comprehensive understanding of recent and upcoming key tax developments impacting international trade.
