The time of the withdrawal of Great Britain from the EU is inexorably approaching and the issue of Brexit has become a frequent topic of discussions. Although the political process regarding Britain’s withdrawal from the EU has not come to an end yet, let’s summarise the alternative scenarios and their possible impact.
Approval of the EU Divorce Agreement or “Soft Brexit”
In the past few days, the content of the agreement was finalised at last and approved by the British cabinet. However, it is still to be approved by the British Parliament and the result is far from being certain. The British Parliament should deal with the issue before Christmas. The agreement is also to be approved by the European Parliament.
The EU divorce agreement includes a transition period, which shall last until 31 December 2020, and which shall provide companies and individuals as well as state institutions with time to prepare for the final Brexit. The final relationship between the EU and Great Britain after the end of the transition period will be subject to a separate agreement.
During the transition period, Great Britain will continue to be a member of the customs union and the EU single market. Thus, no significant changes will occur for Britain from the perspective of customs and VAT, all the transactions will be Intra-Community transactions. During the transition period, Britain will not be able to apply its newly agreed deals or rules in areas governed by the EU.
Non-Approval of the Agreement with the EU or “Hard Brexit”
If the divorce agreement between Great Britain and the EU is not approved, Great Britain will leave the EU on the night from 29 March 2019 to 30 March 2019 under circumstances referred to as “hard Brexit”. Under such scenario, Great Britain will be considered a third country with no custom concessions. All the imported and exported goods will be subject to standard customs procedures, including customs duty assessment. Further impacts are expected in the area of the origin of goods or matters related to the necessity to provide import/export licenses for certain groups of products.
In relation to VAT, it will be necessary to report the relevant transactions with goods as imports or exports. In the area of VAT, the existing procedures applied within the EU related to eg consignment supplies, triangulation, on-line sales of goods, using a single administration point or VAT refunds to persons from other EU member countries might also be affected in relation to Great Britain. Selected financial transactions with Great Britain will newly give rise to a VAT deduction claim.
Further Alternatives
The possibilities of postponing the deadline for Brexit or holding another referendum keep reappearing in the media. However, based on the statements of Theresa May, the British Prime Minister, such scenarios are not to be taken into account. Whether there is any justification for these alternatives will become clear only after the vote about the divorce agreement in the British Parliament.
Our Recommendations
With respect to the uncertain political situation in Britain, we recommend preparing for the possibility of a hard Brexit that does not provide any transition period. Only timely preparation for the possibility of a hard Brexit may eliminate the impacts that a hard withdrawal of Great Britain from the EU will bring.
We will be glad to provide you with a more detailed analysis or assist you in setting up efficient VAT and customs processes.
The article is part of dReport – December 2018, Tax news; Grants and investment Incentives.
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