As 28 Member states becomes 27, is it time to say goodbye

Indirect Tax Matters March 2020 Edition

On 31 January 2020, the United Kingdom left the European Union. Under “EXIT” rules, a “transition period” will now apply until 31 December 2020 unless, in the interim, the UK seeks an extension (a maximum 2 years which it’s obliged to request pre 01 July 2020/a belated request for an extension post 01 July is not a given!).

During the “transition period” the UK, to all intents and purposes, will remain “in” the EU and therefore will both apply and abide by current EU law. On 01 January 2021, it will become what is referred to as a 3rd country.

Under the Northern Ireland Protocol Agreement, NI will, for a 4-year consent period, remain within the European Union. However, as NI is part of the UK Union, it will also remain within the territory of the UK Union, therefore holding a dual membership of both UK and European Unions.

When the UK’s transition period expires, it will forfeit simplification and preferential trade arrangements as currently available with intra-Community acquisitions and dispatches, such as duty, VAT and all commercial benefits associated with access to the EU Single Market. 

The further and unavoidable consequences are that this will impact significantly on “Ireland” regardless of whether you are a manufacturer, an importer, an exporter, a national or domiciled consumer, or a tourist. Equally, the EU’s 2nd largest economy’s departure will impact on trade for all 27 Remainers as it will create additional costs by way of import tariffs (in both directions, affecting import and export), customs administrative declarations, as well as “just in time” deliveries and demurrage charges. 

There is scope, albeit a diminishing hope, that during “transition”, both parties might secure a preferential or free trade agreement (FTA). However, given the complex nature of arranging and agreeing such terms, compounded by the limited timeframe available, it would appear that, chronologically, it may not be possible if the UK adheres to the “red lines” already declared and repeated by the PM. These red lines have become more entrenched ever since the December 2019 return to parliament and are becoming increasingly so over recent period and by the ever increasing rotation of stauncher BREXITEERs.

The PM, his previous Chancellor Mr Javid and the current chief negotiator (TASK FORCE EUROPE) Mr David Frost are adamant and have reaffirmed that there will be no transport checks on East/West (Irish Sea) traffic within UK, i.e., Northern Ireland to/from mainland Britain. On the other hand, Michel Barnier (EU negotiator) has trenchantly affirmed that for security, separation of each Union’s economy and trade that there must be goods and traffic checks, including a “level playing field” on issues such as standards, state subsidies, environmental, and workers’ rights, among other things.

The UK’s approach to achieving an FTA defies and opposes the previously agreed Protocol, whereby there would be negotiated practices and traffic procedures to identify goods arriving from 3rd Countries which could be “at risk” of entering the European Union. Also, that must include goods originating in UK or other 3rd country originating goods. Otherwise, non-EU goods entering NI via UK are at risk of entering EU (Ireland) given that NI still remains within the EU. Any such relaxation or diminution of border controls will not be acceptable or compatible with the EU and would simply compromise the integrity of the borderless Single Market. And what’s being glaringly sidestepped by UK is that the Northern Ireland Protocol Agreement is a part of/a condition of the UK’s already agreed withdrawal from the EU.

Below is a timeframe for negotiations during transition:

February: EU will begin to formulate a mandate for EU-UK talks on a new working relationship/Trade Agreements (FTAs) 

March: new relationship talks will begin and must end October to enable ratification by 31 Dec. 

June: a Summit to determine how negotiations are developing 

July 1st: the proposed closing date that UK may specifically seek an extension to 31 Dec deadline. 

October: there will be a “27 Remainers” Summit to determine if the 31 December proposals are acceptable and can/will be attained. 

December: transition period closes 31st

A December non-acceptance by either party will mean a NO DEAL come 01 January 2021.

Viewing red lines through rose tinted glasses you does not augur well for either Union.

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