The UK-EU Trade and Cooperation Agreement - Our Analysis

Indirect Tax Matters February 2021

Almost four and a half years after the Brexit referendum, the UK and EU negotiators signed the Trade and Cooperation Agreement (TCA) on 24 December 2020, defining the future trading relationship between the two parties as of 1 January 2021.

The trade agreement sets definitions and common ground for the parties, e.g. in relation to the classification and valuation of goods under the World Trade Organization General Agreement on Tariffs and Trade (GATT) provisions.

Most significantly, it eliminates customs duties on all trade in goods originating in the UK or the EU, representing the most extensive trade agreement on tariffs the EU has ever done.

These measures are in line with most modern EU Free Trade Agreements, and in some respects go further than the EU has before. With the UK as a significant trading partner, the agreement provides a potential platform for greater facilitations, simplifications and information exchange for Irish businesses.

What does the TCA include?

  • Tariff-free, quota-free trade in goods between the UK and EU. This is of particular importance to businesses in high tariff sectors such as food and agriculture.
  • Rules of Origin which recognise both UK and EU content as “originating” (known as full bilateral cumulation).
  • Self-certification for businesses - Irish exporters will be able to declare the origin of the goods through a statement, e.g. on an invoice, thereby making it easier for importers to prove the origin of their products. Importers may also be able claim preference based on their own knowledge or information. A statement of origin can cover multiple identical shipments over the course of a year.
  • Importers in the UK will have up to three years from the date of importation to claim preferential tariff treatment. The EU has also said statements of origin can be made from day one with the detailed proof of origin not being required until 2022.

What are the actions for the business?

  • Exporters in Ireland will be required to determine the correct classification code for their products and then establish the origin rule that applies under the TCA. We recommend that businesses keep clear evidence of origin calculation, certification and have robust record-keeping processes.
  • Importers in Great Britain will need to check that exporting suppliers understand the rules and provide evidence to support origin qualification. In order to claim preference at import, clear instructions should be provided to customs brokers and the country of origin should be clearly defined on all commercial documentation.
  • In order to facilitate trade, the EU has outlined that businesses will benefit from additional flexibility in collecting documentary evidence during the first year of operation of the TCA thus allowing businesses greater time to obtain evidence of origin.

The Revenue Commissioners have outlined the process for self-certification as follows:

To prove the origin of a product the Irish exporter should include a ‘statement on origin’ on either an invoice or any other document that describes the product in enough detail to identify that product.

The wording of the ‘statement on origin’ is given in Annex ORIG-4 of the Agreement.

For consignments valued above €6,000, businesses using a ‘statement on origin’ must be registered on the Registered Exporter System (REX).

For consignments valued at €6,000 or less, the ‘statement on origin’ can be made with no obligation to be registered on REX.

Alternatively, a claim for preferential tariff treatment may be made on the basis of ‘importer’s knowledge’. This allows the importer to claim preferential tariff treatment based on information in the form of supporting documents or records provided by the exporter or manufacturer, which are in the importer’s possession.

Rules of Origin

The Agreement indicates that no goods originating from either the EU or the UK will be subject to customs duties or quotas when imported into the other Party’s territory. To determine whether goods are eligible or not, the applicable rules of origin have to be considered. In short, goods imported into Ireland must be of UK origin to qualify for zero tariffs.

In order to qualify as UK originating products, the goods must be either

  1. Wholly obtained in the UK,
  2. Be produced entirely from raw materials sourced in the EU or the UK, or
  3. Have been sufficiently processed in the UK.

Wholly originating
Businesses that trade in products such as fresh fruit, vegetables, live animals and extractable natural resources should consider whether these products meet the wholly originating criteria. They should determine whether such products are extracted, harvested or grown in the EU or the UK in order to be considered ‘wholly obtained’ and thus originating for the purposes of EU-UK TCA.

Sufficiently processed / minimal operations
Businesses that trade in manufactured or processed products firstly need to determine whether the products can be considered to have been sufficiently transformed in the EU or the UK. As a first step, a business should check whether the type of processing its products undergo is not the type of minimal operations that would be insufficient to confer origin to that product. This could include such operations as labelling or simple assembly and are listed in Article ORIG.7 of the TCA. This list only applies to products sourced outside the EU/UK, otherwise known as Non Originating Materials (NOM).

If the type of processing or manufacturing taking place in the EU or the UK goes beyond the “minimal operations” and can be considered as sufficient processing, the business determining the origin of the goods then needs to review the requirements contained in the “Products Specific Rules of Origin” contained in Annex ORIG-2.

These product-specific rules stipulate what kind of alteration must happen to the non-originating materials used in the manufacture of the exported product to ensure that the product is eligible for the zero customs rate under the EU-UK TCA.

Depending on the type of the product, there can be several criteria for the product specific preferential origin rules. These include:

  • Manufacture from wholly obtained materials;
  • Change in tariff classification,
  • A specific processing operation; and/or
  • A limit on the value or percentage of non-originating materials.

In summary, while the Agreement provides a relief for businesses in relation to tariffs, businesses should ensure that they are compliant with the rules of origin for their products in order to avoid costly mistakes going forward.

If you have any questions about the customs impact of the EU-UK Agreement on your business, or would like specific advice on complying with the origin requirements, please contact Donna Hemphill or Vincent McCullagh.

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