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Brexit: The European Commission has issued a Notice highlighting the main Customs and Indirect Tax implications of the UK leaving the EU.

carolineheath 5 February 2018 No comments

The European Commission has published a Notice to Stakeholders on the customs and indirect tax implications of the UK leaving the EU.

The Notice states that, subject to any transitional arrangement or a different date being included in the ratified withdrawal agreement, as of 30 March 2019 the EU rules concerning customs and indirect taxation will no longer apply to the UK.  The Notice sets out the consequences of the UK becoming a “third country” and the impact this could on both UK and EU businesses.

Customs changes

The specific issues identified on the customs side once EU rules no longer apply to the UK are:

  • Goods which are brought into the customs territory of the EU from the UK or move from the EU to the UK, will be subject to customs supervision and may be subject to customs controls. This means that customs formalities will apply, declarations will have to be lodged, and customs authorities may require guarantees for potential or existing customs debts.
  • Goods which are brought into the customs territory of the EU from the UK will be subject to the application of the relevant customs duties.
  • Certain goods which enter the EU from the UK or leave the EU for the UK will subject to prohibitions or restrictions on grounds of public policy or public security, the protection of health and life of humans, animals or plants, or the protection of national treasures.
  • Authorisations granting the status of Authorised Economic Operator (AEO) and other authorisations for customs simplifications, that have been issued by the UK will no longer be valid in the customs territory of the EU.
  • Goods originating in the UK that are incorporated in goods exported from the EU to third countries will no longer qualify as “EU content” for the purpose of the EU’s Common Commercial Policy. This may affect the applicability of preferential tariffs agreed by the EU with third countries.

Indirect Tax (VAT and excise duties) changes

The specific points identified on VAT and excise duties are:

  • Goods which enter the VAT territory of the EU from the UK or are dispatched or transported from the VAT territory of the EU to the UK will respectively be treated as importation or exportation of goods. This implies the charging of import VAT on imports, while exports will be exempt from VAT.
  • Businesses wishing to use one of the special Mini One-Stop Shop (MOSS) schemes, who supply telecommunications services, broadcasting services or electronic services to non-taxable persons in the EU, will have to be registered for the MOSS in an EU Member States. UK registrations will no longer be valid.
  • UK businesses wishing to claim a refund of VAT incurred in EU Member States will no longer be able to use the EU online cross-border refund system. They will instead have to claim via the paper based 13th Directive refund scheme for non-EU businesses. In addition, EU Member States may make refunds under the 13th Directive subject to reciprocity.
  • A UK company carrying out taxable transactions in the EU may be required by individual Member States to appoint a tax representative as the person liable for payment of the VAT.
  • Movements of goods into the excise territory of the EU from the UK or dispatched or transported from the excise territory of the EU to the UK will respectively be treated as the importation or exportation of excise goods. This implies that the Excise Movement and Control System (EMCS) on its own will no longer be applicable to excise duty suspended movements of excise goods from the EU into the UK, but those movements will be treated as exports, where excise supervision ends at the place of exit from the EU.
    Movements of excise goods to the UK will therefore require an export declaration as well as an electronic administrative document (e-AD). Movements of excise goods from the UK to the EU will have to be released from customs formalities before a movement under EMCS can begin.

Many of these issues will result in an increased administrative burden and additional costs for businesses.  Given the current uncertainties in the Brexit negotiations, businesses involved in cross-border transactions with the EU should now be considering how to address the above changes.

For further information about how Brexit could impact your business take a look at our series of Brexit white papers.