The Withdrawal Agreement governs the most relevant separation issues, including the EU customs perspective, the VAT consequences, the border between Ireland and Northern Ireland and the transitional period. Below we have listed the main consequences.
- Transition period: the UK will legally leave the EU on 29 March 2019, but there will be a 21 month stand-still transition period during which everything will remain the same (i.e. the EU will treat the UK as if it were a Member State; see below). The transition period will last to 31 December 2020. The UK will be able to negotiate, sign and ratify its own trade deals during the transition period. Also, the transition agreement could be extended if both parties agree.
- Tax related matters: the agreement means that EU law will continue to apply in the UK as if it were a Member State. This means that the UK will continue to participate in the EU Customs Union and the Single Market (with all four freedoms) and all Union policies. At a detailed level, this will mean adopting measures such as the EU Mandatory Disclosure Regime and the EU Anti-Tax Avoidance Directive, and any subsequent changes to them passed in the transitional period. EU State Aid rules will also continue to apply.
- Role of the Court of Justice of the European Union (“CJEU”): as a consequence of EU law being applicable to and in the UK as if it were a Member State, also the role of the CJEU would remain. This means that any issue relating to EU law after the transition period goes to the CJEU. However, the UK will not in fact be a Member State and this could be significant with regard to non-EU matters, e.g. US tax treaties that contain a reference to EU Members in the Limitation of Benefits clause.
- OECD BEPS standards: the UK has committed to implement the principles of good governance in the area of tax, as recently agreed by the EU Council. These include global standards on transparency and exchange of information, fair taxation and OECD-BEPS standards. In addition, the UK will continue to apply its domestic law, as applicable at the end of the transition period, which transposes the EU Directives on the exchange of information on taxation, anti-tax avoidance rules and Country-by-Country Reporting. Moreover, the UK is restricted to introduce harmful tax measures (as defined in the EU Code of Conduct).
- Movement of goods: the Withdrawal Agreement states that rights and obligations under the EU VAT Directive will apply, until 5 years following expiration of the transitional period (to transactions that are within the scope of the EU VAT Directive at the end of the transitional period). Exceptions from this rule are (among other items) cross-border VAT refunds within the scope of Directive 2008/9 (for which refund requests need to be filed by 31 March 2021 at the latest).
- For the future relationship, the Withdrawal Agreement sets an aim for “zero tariffs, no fees, charges or quantitative restrictions across all goods sectors”.
If the UK Parliament votes down the deal then there are several different options of what can happen next. These could include renegotiation of the deal, extension of the Article 50 period, a second referendum or a general election. They would also include the UK leaving on WTO terms after the Article 50 period expires.
Recommendation for clients
We generally recommend clients to consider including Brexit clauses in agreements that trigger some change in rights/obligations as a result of a Brexit-related event. A Brexit clause may provide protection against adverse circumstances. Following a Brexit EU companies may be exposed to a loss of “passporting” benefits currently available under EU rules (making it impossible in certain cases to sell a product or service in the UK). In addition tariffs or other specific costs may be imposed, the F/X exposure increases and market demand may be affected. It should be noted however that typically the question is whether these kinds of clause are sufficiently specific to be contractually enforceable. By nature these kinds of clauses tend to be broad. Hence, they are vulnerable to various interpretations. Following the 11 December 2018 (British parliament) vote we expect (and hope) that these clauses can be made more specific.
ABOUT NOVIOTAX
NovioTax is a Dutch research-oriented tax consultancy firm with offices in Amsterdam and Nijmegen. Our employees are members of the Dutch Association of Tax Advisers (NOB) and the International Fiscal Association (IFA), have many years of experience and some are much sought-after guest speakers on tax policy and other topics that fall within their field of expertise. We typically serve midsized and large MNE clients, coordinate discussions with the DTA and closely cooperate with international law and tax law firms.
DISCLAIMER
The information contained in this blog is of general nature and does not address the specific circumstances of any particular individual or entity. Hence, the information in this blog is intended for general informational purposes and cannot be regarded as advice. Although we endeavor to provide accurate and timely information and great care has been taken when compiling this blog, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. We do not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without our consent.
