by Jason Gorringe, Tax-News.com, London
23 November 2018
An agreement has been reached between the European Union and the United Kingdom on Brexit, which, if approved by UK lawmakers, would establish a transition period, until the end of 2020, during which EU law would continue to apply to the UK.
A potential transition period would support businesses in allowing them more time to come to terms with the changes of the UK no longer being an EU member state. Controversially the deal includes a provision that would allow the UK Government to seek EU approval for an extended transition period, beyond 2020.
During this proposed transition period, the entire EU acquis – its accumulated legislation, legal acts, and court decisions – will continue to apply to and in the UK as if it were a member state. This means that the UK will continue to participate in the EU Customs Union and the Single Market (with all four freedoms) and all Union policies. Any changes to the Union acquis will automatically apply to and in the UK. The direct effect and primacy of Union law will be preserved. All existing Union regulatory, budgetary, supervisory, judiciary, and enforcement instruments and structures will apply, including the competence of the Court of Justice of the European Union.
The Withdrawal Agreement covers all issues concerning the UK’s exit from the European Union. Notable statements on tax matters include confirmation that EU case law must be adhered to by the UK during the transition period, the UK would continue to be covered by EU trade deals until the date it leaves the EU and would not be allowed to negotiate its own bilateral deals, UK and EU persons would retain benefits they receive under the current social security framework, and goods shipped prior to the end of the transition period that are in transit after the end of the transition period would continue to be covered by the EU laws they were subject to when dispatched.
The Agreement also includes a Protocol on Gibraltar, which provides for close cooperation between Spain and the UK in respect of Gibraltar on the implementation of citizen’s rights provisions within the Withdrawal Agreement and concerns administrative cooperation between competent authorities in a number of policy areas.
On rulings from the European Court of Justice, an explanatory memorandum from the European Union explains: “[…] Both Parties should ensure in their respective legal orders primacy and direct effect, as well as consistent interpretation with the case law of the Court of Justice of the European Union (CJEU) handed down until the end of the transition. Direct effect is mentioned explicitly with reference to all provisions of the Withdrawal Agreement which meet the conditions of direct effect under Union law. This basically means that concerned parties can invoke the Withdrawal Agreement directly before national courts both in the UK, as well as in the EU member states.”
It adds: “Furthermore, UK courts must abide by the principle of consistent interpretation with the CJEU case law handed down until the end of the transition period and pay due regard to CJEU case law handed down after that date. The Agreement specifically requires the UK to ensure compliance with the above through primary domestic legislation, specifically empowering UK judicial and administrative authorities to disapply inconsistent or incompatible national law.”
On tax issues, it states: “For customs, VAT, and excise purposes, the Withdrawal Agreement ensures that movements of goods which commence before the UK’s withdrawal from the EU Customs Union should be allowed to complete their movement under the Union rules which were in place at the start of the movement. After the end of the transition period, the EU rules will continue to apply for cross-border transactions that started before the transaction period in terms of VAT rights and obligations for taxable persons, such as reporting obligations, payment, and refund of VAT. The same approach applies for ongoing administrative cooperation, which, together with exchanges of information that started before withdrawal, should be completed under the applicable EU rules.”
A UK Government guidance note on the Withdrawal Agreement goes into further detail, stating: “VAT and excise treatments for goods that are midway through an intra-EU
customs movement that begins before the end of the implementation period and
finishes afterwards will continue to be treated as though they are under EU law.”
“Goods moving from the UK to an EU member state, and vice versa, which
commenced their journey before the end of the implementation period, will continue
to be treated under the rules on intra-EU movements of goods set out in the VAT
Directive and the EU rules on intra-EU movements of excise goods.”
“The UK will continue to have access to a number of EU networks including
information databases to allow the UK to share information on VAT and excise and
to fulfil the obligations listed in the Withdrawal Agreement.”