Trade and Customs white papers published
- Whatever the future arrangements, the UK will leave the current EU Customs Union and there will be some form of border for the movement of goods, though there may be only light touch processes provided a new UK-EU customs partnership can be agreed (in addition to specific arrangements for the land border in Northern Ireland). Businesses may wish to start considering the impact of these proposals now, given the potentially long lead times associated with such changes .
- Current UK customs legislation is insufficient to create a standalone customs regime, and the Customs paper confirms that the UK’s new legislation will, as far as possible, replicate the effect of existing EU customs laws.
- The paper also covers provisions for the implementation of customs, VAT and excise regimes in the event that ‘no deal’ on Brexit is reached. The Government has acknowledged that there will be an increased administrative burden on businesses importing products into and exporting products from the UK, unless a customs partnership can be agreed.
- The Customs Bill, due to be published this autumn, will allow the Government to create a standalone customs regime by ensuring, among other powers, that the UK can set and charge customs duty on goods (including on goods imported from the EU).
The UK will also need to make changes to the cross-border rules for the VAT and excise regimes following the UK’s exit from the EU. Once the UK exits the EU, the Court of Justice of the EU (CJEU) will no longer have jurisdiction over UK customs, VAT and excise (although the UK will remain subject to the CJEU during any transitional period after Britain leaves the EU in March 2019). The Government is considering two broad approaches to its future customs relationship with the EU: a ‘highly streamlined customs arrangement’ or a ‘new customs partnership’ with the EU. The Government is assessing which option delivers the greatest economic advantage to the UK. It also has three strategic objectives:
- Ensuring that UK-EU trade is as frictionless as possible
- Avoiding a hard border between Ireland and Northern Ireland and;
Establishing an independent international trade policy.
European Commission proposals for the reform of the EU VAT system
On 4 October 2017, the European Commission published proposals for a series of key reforms to improve and modernise the VAT system by creating a new ‘definitive VAT system’. The focus of the proposals is on tackling VAT fraud, with the proposals aiming to reduce the amount lost to cross-border VAT fraud by 80% or around €40 billion annually. The EU is also looking to make the VAT system more robust and simpler while reducing the possible ‘distortions of competition’ associated with non-harmonised VAT rates.
- Tackling VAT fraud: VAT would be charged on cross-border trade between businesses. Currently, this type of trade is exempt from VAT.
- One Stop Shop: VAT obligations for companies that sell cross-border will be simplified. This concept is already familiar in cross-border trade.
- Greater consistency: a move to the ‘destination’ principle where the final amount of VAT is paid to the final consumer’s member state at the applicable rate.
- Less red tape: simplification of the invoicing rules to enable sellers to issue invoices in compliance with their local rules, even when the underlying supply is cross-border.
Although the EU is trying to establish an EU-wide system which can ‘keep pace with today’s digital and mobile economy’, it is not proposing any new tax charges specifically addressing the taxation of the digital economy. The proposals also introduce the notion of a ‘certified taxable person’ (CTP). Provided that companies meet certain criteria, they will be able to obtain EU-wide certification as ‘a reliable VAT taxpayer’. Once certified, both they and the companies that do business with them will enjoy a number of simplified procedures for the declaration and payment of cross-border VAT. These proposals require unanimous agreement from all member states in the Council before they can enter into force. The intention is that four ‘quick fixes’ (available only to CTPs) will come into force by 2019 – these are: Simplification of VAT rules for call-off stock. CTPs will no longer need to register and pay VAT in another member state when they store goods there.
- Simplification for elements of chain transactions by CTPs which don’t involve the physical movement of goods, for example where there is a sales chain, but physically the goods move directly from the original seller to the final buyer.
- Harmonized and uniform rules making it easier for CTP traders to prove that goods have been transported from one EU country to another.
- Clarification that, in addition to proof of transport, the VAT number of the commercial partners recorded in the electronic EU VAT-number verification system (VIES) is required for the cross-border VAT exemption to be applied under the current rules. These short-term measures are intended to improve the day-to-day functioning of the current VAT system until the implementation of the definitive VAT system, planned for 2022.
The proposals only apply to transactions within the EU. Assuming the UK leaves the EU before 2022, the proposals will not apply to the UK, unless the UK is able to negotiate a special status with the EU which adopts them.