Brexit Readiness Webinar - Deloitte US

Brexit Readiness WebinarRichard Doherty, Daan de Vlieger, Natalie de Blende, Matthias Lommers, Hugues Hertay9 January 2020

© Deloitte Academy 2020 2Brexit Readiness Webinar

Latest political developments and what to expectRichard Doherty, Moderator

Customs & Trade after BrexitDaan De Vlieger | Global Trade Advisory

Value Added Tax issuesNatalie De Blende | VAT Compliance & Advisory

Business Travel and ImmigrationMatthias Lommers | Global Employer Services

Post-Brexit Direct Tax aspectsHugues Hertay| Global Business Tax

Wrap-upRichard Doherty

Agenda

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2

3

4

5

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• This webinar is being recorded and will be madeavailable afterwards on Deloitte's Brexit Readiness Centre

• The slide deck can be downloaded in pdf format in the module "Documentation & Links"

• During the webinar, do not hesitate to drop questions in the chat box (anonymously)

• Your questions will be addressed at the end of the webinar or after the event by e-mail

Practicalities


January 2020

Latest political developments and what to expect

Richard Doherty


Brexit in 2020: Timetable

UK-EU Future Economic Partnership negotiations

No deal result if Withdrawal Agreement not passed

31 January 2020

Future Economic Partnership (FTA)

No deal result if no Future Economic Partnership is

agreed

Future Economic Partnership (FTA)

No deal result if no Future Economic Partnership is

agreed

Conservative government

General Election

12 December 2019

Deadline for EU exit

Decision on extending the transition period deadline

Extension

No extension

End of the transition

period

End of the transition period with a one-year

extension

End of the transition period with a two-year

extension

30 June 2020 31 December 2020

January 2022 January 2023

Brexit Readiness Webinar© Deloitte Belgium 6

• No agreement on regulatoryalignment

• WTO rules apply to trade

• Restricted movement of people and goods

• Serious negative effects on economic growth forecasted

• No EU regulations or external tariffs affecting UK economy/trade

• UK free to seek new Trade Agreements with non-EU countries

What would a Hard Brexit mean?

A “Hard Brexit” scenario could still occur on 1 January 2021 (or later in the event of an extension) if the EU and UK government fail to agree on the terms of the Future Relationship.

A Hard Brexit after the Transition period?


EEA & Customs Union(UK government has said it doesn’t want this model)

2019 Withdrawal agreement, followed by future Trade

Agreement

Hard Brexit (WTO terms)

Norway + Bespoke Australia

Access to the single market Yes Some? No

Free movement of people Yes No No

Free to negotiate trade deals with non-EU countries

No Yes Yes

EU laws and regulations

InfluenceVery limited No No

ComplianceYes Possible No

Contributions to EU Budget Yes No No

UK alignment with EU labour, environment and health regulations («level playing field»)

Yes To be negotiated No

Impacts on UK of potential future scenarios


Food and Agriculture 1 2 1 1 1

Chemicals and Pharmaceuticals 1 1 2 2 1

Cars and Transport Goods 1 1 2 2 1

Transport Services 2 1 1 2 1

Construction & Real Estate 3 3 2 2 1

Financial, Professional & Technical Services 3 1 2 2 2

Hotels and Restaurants 2 2 1 2 2

Information and Communications 3 1 2 2 2

Tariffs & customs checks

Non-tariff barriers & regulation

Free movement of labour

EU fundingOverall

vulnerability

Source: Bank of England heat map

Agriculture, chemicals, pharma and automotive sectors most vulnerable to Brexit


January 2020

Customs and Trade after Brexit

Daan de Vlieger | Deloitte | Global Trade Advisory


Possible outcomes

Is a trade deal agreed and ratified by 31 Dec 2020?

NO

- Customs solutions described in

the Withdrawal Agreement will

enter into force, in principle as

of 1 January 2021

- Alternative: extension of the

transition period

YES

- New (yet to be negotiated) economic relationship between UK and EU starts, in

principle on 1 January 2021

Post-transition fallback scenario Future deal scenario


Post-transition fallback scenario | Regulatory framework & Ireland issues

• The necessary checks and controls will have to take place on goods entering Northern Ireland from the rest of the UK (and possibly vice versa - declarations for goods entering the rest of the UK from NI will also be required)

• UK authorities will implement and apply the provisions of EU law that the Protocol makes applicable in the UK in respect of Northern Ireland (e.g. Regulation (EU) No 952/2013 laying down the Union Customs Code - see Annexes of the Protocol)

• Therefore, all checks will be carried out by UK authorities with appropriate supervisory and enforcement mechanisms in place for the EU

• The Northern Ireland Assembly (parliament) will be asked to provide its continued support for the Protocol 4 years after the end of the transition period and every 4 years thereafter

GB

Northern Ireland

• UK to implement and enforce its own regulatory framework (which may be different from that of the EU)

• But Northern Ireland will align to the following rules of the EU Single Market:

o Legislation on goods o Sanitary rules for veterinary controls o Rules on agricultural production/marketingo VAT and excise in respect of goods o State aid rules

UK Regulatory territory

EU Regulatory territory


• UK and Northern Ireland form one single customs territory (outside the EU customs territory), with its own customs rules, duty framework, foreign trade policy (incl. the possibility to establish free trade agreements with non-EU countries, etc.)

• Trade between UK and EU will be subject to customs formalities and duties, with a special status for Northern Ireland

• As part of the UK customs territory, Northern Ireland will be able to benefit from future UK Free Trade Agreements (including for example rules of origin for export of goods produced in Northern Ireland)

No UK nor EU customs duties on goods brought into Northern Ireland from another part of the UK by direct transport unless they are considered ‘at risk’ (see next slide)

Goods being moved directly into Northern Ireland other than from the EU or another part of the UK, shall be subject to UK customs duty frameworkunless considered ‘at risk’ (see next slide)

Post-transition fallback scenario | Customs rules & Ireland issues

UK

Northern Ireland


Good considered at risk

Post-transition fallback scenario | Customs rules & Ireland issues

• A good brought into Northern Ireland from outside the EU Customs Union shall be considered to be at risk of subsequently being moved into the Union unless it is established that the good:

o will not be subject to commercial processing in Northern Ireland (alteration, transformation in any way or any subjecting of goods to operations other than for the purpose of preserving them in good condition or for adding or affixing marks, labels, seals or any other documentation to ensure compliance with specific requirements) and

o fulfils the criteria set up by the UK/EU Joint Committee before the end of the transition period. The Joint Committee established by the Withdrawal Agreement shall take into consideration, inter alia:

The final destination and use of the goods

The nature and value of the goods

The nature of the movement

The incentive for undeclared onward movement into the EU, in particular incentives resulting from the duties payable.

• The Joint Committee may amend these criteria at any time.


• Common principles for standardisation, technical regulations, conformity assessment, accreditation market surveillance, metrology and surveillance for technical trade barriers.

• UK and EU should treat one another as single entities for certification purposes regarding phytosanitarymeasures

• Possibility of cooperation of the UK authorities with EU agencies (EMA, ECHA, EASA, etc.) after Brexit

Wish to be as ambitious as possible: facilitation of administrative processes and controls by using facilitative arrangements;and commitment of the UK to customs and regulatory cooperation with the EU will be taken into account in the application of related checks and controls on the EU side.

Economic partnership should ensure no tariffs, fees, charges or

quantitative restrictions across all sectors with accompanying rules of

origin and customs arrangements.

Consideration of mutual recognition of trusted trader’s programmes, administrative cooperation in customs and VAT matters and

mutual assistance (including for recovery of claims related to tax and

duties).

Future Economic

Relationship

The UK and EU agreed on seeking to establish a model based on a comprehensive Free Trade Agreement with zero tariffs and quotas between the EU and the UK, with the possibility of wider sectoral cooperation (as stated in the Political Declaration of 17 October 2019). However, the Declaration is not legally-binding and the negotiators will have freedom to explore solutions other than those set out in October.

Future Economic Relationship Agreement Scenario


January 2020

Value Added Tax issues

Natalie De Blende | Deloitte | VAT Compliance & Advisory


Until the end of the Transition Period – No changes

• Supplies of goods between VAT registered businesses in the EU and UK will continue to be treated as ‘intracommunity’ dispatches and acquisitions

• Intrastat and European Sales Listing will still include the transactions with the UK

• All other provisions regarding the movement of goods between the EU and UK will remain. EU businesses will thus continue to treat movements of their own goods between the EU and UK as supplies for VAT purposes.

VAT impact on trade in goods


After the end of the Transition Period – Changes come into force if no trade deal

• Supplies of goods between the UK and EU will be treated as imports and exports – but supplies of goods between Republic of Ireland and NI remain dispatches and arrivals under the terms of the EU-UK Withdrawal Agreement.

• Introduction of new Postponed Import VAT Accounting regime, under which import VAT can be paid and recovered through the UK VAT return

• In order to pay import VAT through the VAT return, businesses with a VAT registration in the UK will need to make sure their UK VAT registration number is quoted on their customs declaration when importing the goods.

• The facility will be available for UK VAT registered businesses that import goods into the UK from both EU and non-EU countries and will create a cash flow benefit in comparison to the current arrangements for imports.

• Supplies to the UK will no longer have to be included in EC Sales Lists.

• Until today, HMRC (the UK Tax, Revenue and Customs authority) has indicated that Intrastat declarations will nevertheless continue to be required.

VAT impact on trade in goods


Simplification measures:

• Triangular transactions

• Call-Off Stock

• Supply & Install Contracts

• Fiscal Warehousing

• Distance Selling (B2C)

• Postal Imports

No changes during the Transition Period

Possible additional VAT registrations after the transition period has ended

VAT simplifications for trade in goods


Until the end of the Transition Period – No changes

• Supplies of services between VAT-registered businesses in the EU and UK will continue to be treated as ‘intracommunity’ services.

• Current (EU) B2B and B2C rules on place of supply remain applicable.

• European Sales Listing will still include the transactions with the UK

VAT impact on supply of services


After the end of the Transition Period – Changes come into force if no trade deal

After the end of the Transition Period, under the fall back scenario, changes are to be expected inter alia in the following areas:

Use and enjoyment rules

• Use and enjoyment rules are intended to make sure taxation takes place where services are consumed and are often applied in a non-EU dimension.

In the post Transition fall back scenario, suppliers of services will have to apply use and enjoyment rules differently since the UK will become a non-EU country as well.

Digitised services (B2C)

• The Mini One Stop Shop (“MOSS”) is an optional scheme for suppliers of cross-border digitisedservices to private individual customers in the EU.

Under the post Transition fall back scenario, MOSS can no longer be operated in the UK.

This means that UK established businesses or non-EU established businesses currently registered under the UK’s MOSS scheme will have to register for MOSS in another EU Member State.

EU-established businesses supplying digitised services in the UK will be required to VAT register as a non-resident taxable person in the UK



Financial services

• Within the EU, suppliers of financial services are currently only entitled to recover VAT incurred in the course of supplying these services to non-EU customers. Hence VAT on supplies of financial services to UK customers can currently not be recovered.

In a post Transition fall back scenario, since the UK will become a non-EU country, EU established suppliers of financial services will be able to recover VAT incurred in the course of supplying UK recipients

Tour operators

• Tour operators pay VAT under the Tour Operators’ Margin Scheme (“TOMS”) on the margin they make on supplies of bought-in EU travel services

After the Transition Period, under the fall back scenario:

• EU tour operators will continue to account for VAT under the Tour Operators’ Margin Scheme (“TOMS”)

• UK tour operators will account for VAT under an amended TOMS regime, whereby UK VAT will only be paid on the margin on holidays spent in the UK (implying that no VAT will be due on the margin on holidays spent in the EU)



VAT Refund Claims submitted by EU businesses to the UK

• During the Transition Period, the “8th Directive” VAT refund mechanism will continue to operate

• Applications for refunds by EU businesses relating to VAT paid in the UK (and vice versa) must be made by 31 March 2021

• After the Transition Period, under the fall back scenario, it will in principle still be possible for EU businesses to seek refunds of VAT from the UK and vice versa.

• The claims of UK businesses in the EU will no longer be made through the “8th Directive” refund process but under the “13th Directive” refund process for non-EU businesses.

• For EU businesses seeking refund in the UK, it is expected that refunds will be made in the same way as is currently done for non-EU businesses.

Fiscal representation

• In countries where fiscal representation is obligatory for non-EU businesses, UK businesses should check if their direct EU VAT registration (i.e. without fiscal representative) can still be maintained after the end of the Transition Period and whether or not a fiscal representative needs to be appointed.

Other VAT changes


January 2020

Business Travel and Immigration

Matthias Lommers | Deloitte | Global Employer Services


12 December

2019

UK elections –

Conservative

government with

majority.

31 January 2020

The UK is scheduled

to leave the EU.

31 December 2020

Deadline for EU nationals to enter the UK without

restrictions (and vice versa).

1 January 2021

New UK immigration system. All EU nationals arriving after this date will require work visas.

UK nationals moving to EU must comply with EU27 immigration rules.

31 May 2021

Deadline for applications by EU nationals to

acquire Settled Status in UK.

1 February 2020

EU nationals can continue

to enter the UK for work

(and vice versa).

Brexit timeline: Immigration Assuming UK leaves EU on 31 January 2020


Securing

rights

Business

travel

Mobility

planningCommunications Retaining

and attracting

talent

Social

security

& health

care

Negotiations

Spotlight on employers’ considerations


Employer Sponsors

• Streamlined, digitalised sponsor licensing system promised

• Seek to lessen impact on SMEs that are not current sponsors

Skilled Workers

• Employer sponsored• Skill level lowered

to A-level roles• No quota• No Resident Labour

Market Test (RLMT) for skilled roles (possible for medium skilled roles)

• Salary threshold to act as barrier (level to be determined after further consultation with employers, 30k proposed by MAC)

Short Term Workers

• Temporary scheme, potentially until 2025

• 12 months visa followed by 12 months “cooling off”

• No rights to settle, bring dependents or access public services.

• Aims to allow employers to “transition” from reliance on low skilled EU migrants

Business Visitors

• Simplified rules on

acceptable short-term

business activities

• “Low-risk”

nationalities (incl. EU,

Australia, Canada,

Japan, New Zealand,

Singapore, S. Korea &

USA) to enter via e-

gates

• New electronic travel

authorisation (ETA)

needed prior to travel

for low-risk

nationalities (similar

to the ESTA system

for visitors to the US)

Students

• EU and non-EU nationals subject to same student rules

• No limit on number of students universities may admit

• Period that students can stay in UK and work post-study will be extended.

Family Migration

• EU and non-EU

nationals subject to

same family rules

including minimum

salary threshold and

English language

requirements

Australian style Points Based System

The UK Migration Advisory Committee

(MAC) currently looking at how an Australian

PBS could be implemented in the UK

Australia system requires less employer sponsorship, potentially

resulting in a shift of visa allocations in the

UK away from employers

Australian system is more ‘government

driven’ as opposed to ‘demand driven’

Workers have more freedom in the labour

market as they are less dependent on their

employers and do not need permission to

change jobs

Employers need to operate within a system

that relies on the government’s

perception of what skills are valuable,

rather than employers' view

Proposed UK immigration system from 1 January 2021

UK Government Plan | White Paper


January 2020

Post-Brexit Direct Tax aspects

Hugues Hertay | Deloitte | Global Business Tax


After the transition period, existing tax reliefs and exemptions applicable to transactions between

UK and EU based entities as well as access to specific tax regimes/benefits may be affected

Corporate tax and withholding tax aspects

What is at stake? Impact

• Primary EU law: fundamental freedoms, including case law and its impact on national tax legislations

• Secondary EU law: tax directives (Parent/Subsidiary directive, Interest Royalty directive, (Tax) Merger Directive, ATAD …)

• During transition period: EU law will continue to apply during this period to and in the UK as if it were a Member State and any changes in EU law will automatically apply to and in the UK

• After transition period: will depend on the EU and UK’s agreement on the Future Relationship. The 2019 Political declaration states:

“XIV. LEVEL PLAYING FIELD FOR OPEN AND FAIR COMPETITION

[…] The Parties should uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period in the areas of […] and relevant tax matters. The Parties should in particular […] commit to the principles of good governance in the area of taxation and to the curbing of harmful tax practices.”

Loss of access to EU law for UK-related situations:

• Dividend/interest/royalty flows: withholding tax (all) and participation exemption (dividends)

• Other (UK) tax legislation derived from EU directives (ATAD, DAC6 …)

• Tax legislation dependent on EU/EEA residency/nexus (e.g. Belgian tax consolidation regime)

Key points of attention:


January 2020

Wrap-up

Richard Doherty


Check what your business wants – and doesn’t want!

Wrap-up


Key messages

• Take action if your business is exposed to material risk!

A Hard Brexit can still happen

Make up your mind

Deloitte’s Brexit services will

• Assess what your business needs to see in the Future Relationship – and what you want to avoid.

• Keep you informed

• Provide short notice advice and hands-on help

• Tailor our input to your specific needs

• Help you finalise your Brexit plans


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https://www2.deloitte.com/be/en/pages/tax/topics/Brexit-Readiness-Centre-Deloitte-Belgium.html

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