In a press release of January 29, 2018, the Council of Europe announced the second set of additional directives on the negotiations detailing the position of the EU-27 (27 EU Members without the UK) regarding the transition period with respect to Brexit. These directives give the Commission the authority to initiate discussions with the UK on the terms of Brexit and establish a transition period, no longer than until December 31, 2020.
During the transition period in the UK, full and constant application of the EU legislation is provided. However, the state will no longer participate in the EU administration and the decision-making process.
On January 30, 2018, the EU Commission published a document warning the companies of the key challenges in the customs and VAT that they will have to be overcome when the United Kingdom is not a Member of the EU. If no other transition period is agreed between the EU and the UK, the European Customs and VAT regulations in the UK will no longer apply from March 30, 2019, as the UK officially announced its intention to leave the EU on March 29, 2017. This document provides a brief overview of the customs and VAT implications that will arise from the actual date the UK left the EU. From the date of delivery to and from the UK, it will be qualified as imports and exports, rather than intra-Community sales (including the filing of customs declarations, the application of customs duties, etc.).
The document also emphasizes that a number of licenses (for example, customs licenses, the status of the Authorized subject of economic activity) issued by the UK government will no longer operate in the EU and the imports to the UK will no longer be able to use the preferential tariff agreements concluded by the EU with third countries.
A number of other issues, such as the impossibility of the UK to use the European MOSS system and VAT refund procedure after the end of EU membership, are also briefly considered. Moreover, the British companies will be treated as non-EU companies, so they may need to appoint a fiscal representative in a number of Member States for their local registration as VAT payers.
On November 7, 2017, the UK government also published a draft law on taxation (cross-border trade), which is part of the basic legislation establishing the British legislative framework in the field of customs and VAT. At this stage, there are no detailed provisions on many issues. The bill has passed the second reading in the Parliament on January 9, 2018. At present, there is no declared position regarding the transition period, but it is expected in the upcoming government statements.
According to the information document to the British bill, it is designed in such a way to be flexible enough for a range of possible outcomes of the negotiations, including a transition agreement and a scenario where the agreement has not been reached.
In any event, there is uncertainty in the final form that Brexit will acquire and its timing. In this regard, it is recommended for the British companies, as well as European companies with British ties and interests to prepare for the worst possible option, the so-called “complex Brexit scenario”. Along with other issues for the settlement, the implications for VAT and customs clearance will be central to the preparation of Brexit.