Direct & Indirect Tax Implications of Brexit
As Britain went to the polls on June 23rd it become clear that the Brexit Referendum would leave a sour taste in many mouths. What wasn’t clear, was the significant implications for direct and indirect tax matters should Britain choose to leave. As morning broke however, it become clear that Brexit was now a reality.
In the short to medium term, Brexit will have very little, if any, immediate effect on indirect or direct taxes. As the exist process beings and countless negations take place, the length of the secession process mean EU laws and treaty obligations will continue to have effect.
Brexit will provide many ongoing challenge for businesses across many sectors, but with it will come opportunities. Companies that take the time to fully analyse the potential of Brexit within their industry and to their organisation will be well suited to thrive when opportunities are presented. Moving forward, companies across Europe need to focusing on creating short and long-term strategies that remain adaptable and flexible.
Indirect Tax Implications
The biggest implication to come from Brexit is arguably VAT. Among other things, changes to UK VAT law will be needed to reflect the fact that trade with EU Member States will no longer involved intra-EU despatches and acquisitions. Business which are currently registered under the EU Mini One-Stop Shop will need to switch to the “non-EU” equivalent.
The fact that the UK will no longer have to comply with EU VAT law (on rates of VAT, scope of exemptions, zero rating, and so forth) will mean that, following secession, the UK will have more flexibility in those areas. Future governments could consider changes to, for example, restore the zero rating of domestic fuel and power and reinstate the VAT relief for energy-saving products. It is not possible to forecast any possible changes but no doubt any future government will need to consider possible changes in the context of its revenue position.
In respect of day to day VAT matters for businesses, the practicalities of cross border transactions may change following secession. Invoicing and reporting protocols could be revised in respect of cross border supplies and certain sectors will potentially see wholesale changes in respect of how they account for VAT. The UK would probably introduce its own version for businesses selling to UK consumers. It is also unclear if other margin schemes would be retained post secession.
It seems probable that, even after secession, there will be disputes between taxpayers and HMRC over transactions that predate it, and where EU law will still be in point (with the potential for the tribunals and courts to need to refer questions to the CJEU). Plainly, such instances will diminish over time but this is an issue that will need to be tackled in the secession negotiations.
Following secession, the UK would no longer be bound by the Capital Duty Directive and related case law.
Perhaps the biggest Customs Duty related change that businesses are likely to see will be the recognition of trade with EU countries as imports and exports. Depending on the outcome of the secession negotiations, this may mean that duty is payable when goods move to and from EU Member States and this, and the related import and export formalities, may (or may not) result in some impediment to trade.
Direct Tax Implications
Direct taxation is less likely to be directly affected by the decision for the UK to leave. Unlike indirect taxes, direct taxes are not expressly dealt with and maintained by the EU Treaties, as direct taxes are solely a national competency, which must be exercised in accordance with the European Treaties.
Over the coming months and years, there will be significant changes to the political landscape. In the short-term, the government is likely to set up a cross-departmental task force in order to negotiate Britain’s exit from the EU.
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