Leave UK for Germany to weather Brexit impact, KPMG tells Indian companies

Professional services company KPMG has suggested to Indian companies that have operations in the United Kingdom, such as Tata Motors and Infosys Ltd., that wasting time in relocating their businesses from Britain would cost them serious losses due to the post-Brexit impact.

KPMG in its report titled 'The Brexit Strategy–The Impact of Brexit on Indian companies with UK holdings' also cited other countries that would be a more suitable destination for relocation. It listed Germany, followed by the Netherlands, France and Spain, as the most attractive destinations for relocation. The countries were ranked based on parameters such as strategic position, political stability, skilled workforce, labour market and flexibility and stability, productivity, domestic market size, business tax environment and productivity.

Germany has been suggested as a compelling choice for non-EU companies due to the tax benefits it offers; dividends and capital gains received from foreign and domestic shareholdings have 95 percent tax exemption. The country also has the largest domestic market size and should be a favoured destination for Indian industrial companies that are seeking technical assistance in the form of high-end research assistance, specialised industry clusters and high-quality suppliers.

The impact of Brexit on the European operations of non-EU companies will depend upon the outcome of negotiations between the UK and European Union. The three possible scenarios outlined below will continue to pose serious financial risks for non-EU Indian companies

How will Brexit impact non-EU Indian companies?

Non-EU companies with European headquarters in the UK may be affected by limitations on free movement of capital and labour as well as goods and services. Above all, changes in tax issues could encourage international corporates to relocate their UK holding companies to EU-member states.

The introduction of withholding taxes on dividends, interest and licence fees may result in higher overall taxation in the UK versus EU member states, as EU directives that avoid withholding taxes on dividends, interest and royalties received from EU subsidiaries would no longer be available.
Increasing costs for financial services might also put pressure on profits.

Restriction on the free movement of labour could cause additional administrative expenditures in terms of managing European operations and related processes.