Indirect Tax Alert
Brexit - Hope for the best, but prepare for the worst
Keep the goods moving
This alert is part of the series of global trade alerts on Brexit. The present alert aims to provide an update on the current Brexit status as well as recommendations for businesses involved in the UK-EU trade without currently having a relation with the Customs Authorities. It is highly recommended for these businesses to build a relationship with the Customs Authorities in order to keep their goods moving and prevent delays and costs increases. Most likely they can benefit from Customs simplifications as well, if set up properly.
A recent note from the Dutch Customs Authorities shows that a very significant increase in customs formalities is expected as a result of Brexit. Businesses are therefore recommended to timely prepare and assess whether it is possible to improve the current supply chain before the UK has officially left the EU.
How about the Brexit negotiations and UK-EU trade?
On 19 June 2017, the negotiations with the European Commission kicked off. Many (UK) commentators have concluded (or perhaps hope) that the UK election result represents a rejection of “hard Brexit”. Based on recent statements of members of the UK government, it seems however that the UK is still on course for a “hard Brexit”, which means leaving the single market and the EU Customs Union.
Based on statements of Michel Barnier (EU chief negotiator) on Thursday 6 July 2017, there does not seem to be a lot of progress in the negotiations and the future trading relationship may for a considerable period of time fall back to WTO terms. Whatever the end result may be, there is absolutely no clarity of what the exit deal and the future relationship between the UK and the EU will look like.
How about Customs (formalities)?
In all scenario’s (except for the seemingly unlikely scenario in which Brexit does not happen after all), every transfer of goods between the EU and the UK will be subject to import and export formalities. The Dutch Customs Authorities therefore expect a significant increase (up to 140%) in customs formalities as a result of Brexit.
Businesses (as well as Customs Authorities themselves) involved in the UK-EU trade will face a significant additional administrative burden as a result of Brexit. In order to streamline this process, businesses will likely need to employ (more) Customs specialized personnel. It could also be very beneficial for businesses to apply for Customs procedure simplifications such as ‘Entry into declarant’s records’ in order to enter goods to the customs import procedure at their own premises (or at another approved location) instead of having to present these goods to the Customs Authorities.
How about businesses involved in EU-UK trade without a relationship with Customs Authorities?
The Dutch Customs Authorities have also indicated that they currently have no relation at all with 35,352 VAT registered companies who have reported intracommunity acquisitions or supplies from and to the UK. Out of these, 4,604 companies reported transactions with a value of at least EUR 100,000.
These companies have most likely not been involved in customs related matters so far. However, as a result of Brexit, they will - all of a sudden - have to comply with all aspects of EU and UK (uncertain what this will look like) Customs legislation (e.g. in order to file a complete customs declaration it is necessary to determine the customs classification, the customs value and the origin of the goods). Furthermore, these companies might want to benefit from customs procedures (e.g. warehousing) or simplifications (e.g. entry into the records). For these purposes, it is recommended to quickly start building a relationship with Customs Authorities.
The Brexit deadline is approaching rapidly and considering the (almost) certainty that UK-EU transactions will become imports and exports, businesses that export from the UK to mainland EU (or vice versa) or have part of their supply chain in the UK are recommended to quickly assess their current footprint and the possible impact on this as a result of Brexit.
EY has a dedicated team of specialists to assist you through these turbulent times. Through our interdisciplinary approach and our strong world-wide network, we will be able to provide you an integrated approach of the Brexit challenges. This covers tax (Customs, VAT, transfer pricing and CIT), legal and people issues. In many cases we work with other external advisors (management, IT, HR, technical) and your internal business leaders to form a joint task force in order to prepare for a truly integrated supply chain transformation. History shows that clients who are better prepared for the future than their competition, will come out as future market leaders.
The above is based on our interpretation of current tax legislation and case law published to date. This Indirect Tax Alert provides general information with no pretence of completeness, and it is not a tax advice.
For more detailed information about the matters discussed in this Alert, please contact one of EY’s tax dvisers listed below.
Global Trade Contacts
Walter de Wit
Tel.: +31 (0)88 407 1390
E-mail: Walter de Wit
Tel.: +31 (0)88 407 0559
E-mail: Folkert Gaarlandt
Tel: +31 (0)88 407 1490
E-mail: Ashish Sinha
Tel: +31 (0)88 407 8358
E-mail: Hans Winkels
Tel: +31 (0)88 407 1441
E-mail: Caspar Jansen
Tel: +31 (0)88 407 1941
E-mail: Martijn Vroom
International Tax Services Contact
Tel: +44 20 795 15648
E-mail: Jelger Buitelaar