Preparation for a possible no-deal Brexit
Tax & Legal Alert | Issue 609 | 15 January 2019
Due to the fact that concluding a Brexit-agreement between the European Union and the UK is now doubtful, the European Commission published a contingency plan for a potential no-deal Brexit at the end of 2018. In the document, the European Commission emphasizes that it does not replace the Brexit-agreement, but sets up a temporary action-plan for a contingency situation, and concerns the main interests of citizens and companies. The application of these temporary actions would be necessary on EU or individual member states level in case a no-deal Brexit takes place on 29th of March. The contingency plan of the European Commission concerns the following taxation and financial servicesrelated topics:
- Customs and export of goods
- Financial services.
- Rights of UK Citizens
- Value Added Tax
Customs and export of goods
As the United Kingdom will qualify as a third country from the perspective of customs (and other indirect taxes), after its withdrawal from the EU, the goods purchased from the United Kingdom would be subject to customs duty calculated on the basis of the tariff rates determined by the European Union (as well as various indirect tax payments). The importers in the United Kingdom would also have to pay customs duty – based on the tariff rates determined by the United Kingdom.
According to the contingency plan published by the European Commission, Member States would have to use the existing possibilities to issue authorizations for facilitation measures stated in the EU Customs Code (e.g. license for deferred customs duty payment) related to the transactions concerning the United Kingdom.
The contingency plan of the European Commission proposed the following regulatory changes:
- the entry summary declaration or the pre-departure declarations should be lodged – at the latest – two hours before the arrival/departure between a port in the customs territory of the EU and the ports of the United Kingdom;
- in case of the export of dual-use products from the EU to the United Kingdom, the exporters would be eligible to obtain general authorization (which is valid throughout the EU) to export dual-use items, similar to the exports to Norway or Japan.
Financial services.
In particular, the following measures would apply in the event of a no-deal Brexit:
- A temporary and conditional equivalence decision was passed for 12 months until March 2020 to ensure that there would be no disruption in central clearing of derivatives. This would allow the European Securities and Markets Authority (ESMA) to temporarily recognize central counterparties currently established in the UK, allowing them to temporarily continue providing services in the EU. EU27 companies would need this time in order to arrange fully viable alternatives to UK operators.
For a fixed period, two delegated regulations would facilitate the novation of certain over-the-counter derivatives contracts with a counterparty established in the UK to replace that counterparty with one established in the EU.
This would allow such contracts to be transferred to a counterparty established in the EU27 while maintaining their exempted status and thus not becoming subject to clearing and margining obligations under the European Market Infrastructures Regulation (EMIR). As a result, such contracts, pre-dating the EMIR rules are exempted from EMIR requirements, and a change of the counterparty would not affect that exempted status.
Rights of UK Citizens
In the event of withdrawal without an agreement, UK citizens – as third country citizens – will no longer have the right of free movement and residence in the territory of the EU Member States. The Commission stated in its contingency plan that for short stays (up to 90 days in a 180 day-period) UK citizens would be exempted from visa requirements in the territory of EU Member States, provided that all Union citizens are vice versa exempted from UK visa requirements.
However if the intended stay period is longer, UK citizens would need to obtain a residence permit or a long-stay visa from the competent national authority of the given EU Member State. It is important to note that the communication does not refer to any safeguard that would prevent UK nationals residing in the EU from having to suspend their work until they obtain the relevant permit allowing them to work.
Value Added Tax
In addition to the above, at the end of 2018, the UK government also published a guidance for a no-deal Brexit. The UK government’s aim is to mitigate the effects of the VAT changes relating to Brexit. Accordingly, the government has announced that in the event of a no-deal Brexit, the companies in the UK will be able to fulfil their import VAT liabilities in their VAT returns with no further conditions. This provision helps to the companies to mitigate the financial burdens caused by VAT amendments.
With respect to the fact that the Brexit is expected to happen in 75 days, it is important for companies to prepare a Brexit handling scenario concerning the possibility of a hard Brexit, as well. According to the latest news, a Brexit agreement vote will take place tomorrow, after which we will have more information on the outcome of Brexit . After the Brexit vote, we will provide our clients with a detailed summary of the major taxation and financial aspects of Brexit.
PwC launches a survey to gather information on how Brexit affects our clients. Therefore, we ask you to click on this link and fill our Brexit questionnaire which only takes a few minutes to complete.
