The UK exits the EU on 31st January 2020. By virtue of the transitional period in the Withdrawal Agreement, EU law will continue to apply in and in relation to the UK only until the 31st December 2020.
After the transitional period the UK will cease to be a member of the single market and Customs Union and the European Court of Justice will cease to have jurisdiction in the UK. Whilst the Government seeks to negotiate a trade and customs agreement with the EU, the impact on UK tax law remains, to a degree, uncertain.
VAT, custom duties and other indirect taxes
Whilst most VAT legislation will become EU-derived legislation under the Withdrawal Act and so is implemented into UK law there are a number of advantages which will be lost to UK businesses as a result of Brexit. For example, UK businesses who supply B2C digital services to EU customers will no longer be able to use the EU VAT mini-one-stop-shop (MOSS) to report and account for VAT.
Likewise the distance selling rules will longer apply. Goods entering the EU from the UK will be treated in the same way as goods arriving from any other non-EU country, with import VAT and customs duties due on arrival. Special rules will apply to Northern Ireland.
EU tax directives
Whilst EU tax directives (for example, the Interest and Royalties Directive, Mergers Directive, Parent-Subsidiary Directive) will cease to apply post-Brexit, the rules have already been implemented into UK law. However, the treatment of interest, royalty and dividend payments from EU member states to the UK, after the transitional period, will be dependent on the particular state's domestic law and double tax treaty position. As such withholding taxes on such payments may arise.
Companies should use the transitional period to review their international tax strategies to determine whether, and to what extent, they should be adopting alternative approaches to effect business in the post-Brexit environment.
For example, companies which currently use the EU MOSS scheme will need to register for the non-EU VAT MOSS scheme in an EU country.
Businesses should likewise ensure that they are familiar with the procedures and administration required for VAT and customs reporting on imports and exports into and out of the EU/UK. From a direct tax perspective, businesses will need to consider whether they rely on EU directives to receive payments of dividends, interest or royalties from EU companies free of withholding and whether Brexit will change the status quo. For example, it may be necessary, instead, to apply for relief under the relevant double tax treaty.
Whilst the UK's exit from the EU on 31st January 2020 should have little immediate effect from a tax perspective, businesses should, to the extent they have not already done so, use the transitional period to review their tax position and prepare for the inevitable changes that Brexit will bring.