post eu referendum – managing the indirect tax … eu referendum – managing the indirect tax...

Post EU Referendum –

Managing the Indirect Tax Landscape

1 July 2016

Brexit - “Keep Calm and Carry On”

AGENDA

► Brexit - What now?

► What are the macro

implications?

► What are the indirect tax

implications?

► What can you do now?

Post Referendum Indirect Tax Landscape

The EY Indirect Tax Brexit Referendum

A quick straw poll:

1. Will your business be affected by Brexit?

2. Have you planned in advance for a Leave scenario?

3. Do you feel comfortable you understand the implications for your business?

4. Is your business considering any significant changes as a result of the Leave decision?


Brexit – political reaction

UK► UK PM David Cameron resigns, new

Conservative leader to be in place by

October

► Lord Hill resigns as UK’s European

Commissioner

► Labour leadership election

► Scotland – second referendum on Scottish

independence?

► Re-unified Ireland discussion?

EU► EU Council 28-29 June 2016

► EU Parliament held a special session on 28

June 2016


Overseas

► President Obama

“The special relationship between the United States

and the United Kingdom is enduring…The United

Kingdom and the European Union will remain

indispensable partners of the Untied States even as

they begin negotiating their ongoing relationship…”

► China People Daily

“Cooperation won’t change because of Brexit”

► Malaysian Prime Minister Najib Razak

“We should increase [trade between Britain and

Malaysia] and there maybe an opportunity to do so

now if the UK reaches out to strategically important

nations beyond the EU.”

Brexit – How could the UK exit?

Potentially different routes► Negotiated withdrawal under Article 50 of

the Treaty of Lisbon

► Unilateral withdrawal

► Nothing

Constitutional questions► Devolved assemblies: veto vs. consent

EU view► Junker: “[delay] doesn't make sense”

► Merkel: “shouldn't take forever” but “would

not fight over a short period of time”


Article 50

1. Any MS may decide to withdraw from the Union …

2. A MS which decides to withdraw shall notify the European Council of its intention. … the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. … It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the MS concerned, unanimously decides to extend this period.

4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing MS shall not participate in the discussions of the European Council or Council or in decisions concerning it.

5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

Article 50 – Potential timeline


► Once notice given, negotiations start and clock is running – when to give notice?

► Treaty provides for two years could be shorter if agreed or longer if extended by

unanimity

Referendum

June 2016 October 2016

New UK Prime Minister

April/May 2017

French Presidential Election

August-October 2017

German Federal Election

July –December 2017

UK has EU Presidency

Notice 31 December 2016?

UK leaves EU

1 January 2019?

Key areas for tax professionals


Trade

People

Treasury and finance

Headquarters

Systems changes

Ongoing tax changes

Future reform

Immediate actions:

• Dealing with volatility

• Treasury

• Transfer pricing

• Reassure people

Short to medium term:

• Key functional areas

Indirect Taxes and Trade


UK’s trade position today


Single Market

► A single legislative basis applies within the EU (the Union

Customs Code and implementing provisions).

► The EU is the member of the WTO and enters into FTAs

on behalf of Member States.

EU FTA in place

EU FTA in negotiation – time consuming process

No EU FTA

Potential trade models

► EU Special Status

► Norway model – European Economic Area (EEA)

► Switzerland model – Bi-lateral trade agreements

► Turkey model – Customs Union with the EU

► Canada model – Free Trade Agreement with the EU

► Singapore/Hong Kong model – Unilateral Free Trade approach

► World Trade Organisation – Free trade under WTO rules


Cu

rren

t B

usin

ess M

od

el

EU Special

Status

(Norway +)

Identify key

impact areas:

►Customers

►Suppliers

►Systems

►Processes

►Lobbying

►Cash

►Model Change

EEA

(Norway)

Bi-lateral

Agreements

(Turkey

Switzerland)

FTA

(Canada)

WTO

Re-model under potential

future trade scenarios

Review dependence on EU law and assess impact of Brexit on

existing rulings, tax positions, and controversies

Taking the initiative – Indirect Tax and Trade Impact Assessment

Unilateral

Free Trade

(Singapore)


Trade scenarios post Brexit


Example Tariff free? Customs

union

Access to EU

FTA’s

Removal of non-

tariff barriers

Financial

contribution

Vote on EU

rules

Free

movement

EU special

status

► Yes ► Full ► Yes ► Yes ► Yes ► Yes ► Yes

European

economic area

(EEA)

Norway ► Mostly ► No ► No ► Some ► Some ► No ► Access to

single market

► Customs

compliance

Bilateral

agreement 1

Switzerland ► Mostly ► No ► No ► Some ► Some ► No ► Bespoke

access to

single market

► Customs

compliance

Bilateral

agreement 2

Turkey ► Manufacture

► Processed

agriculture

► Some ► No ► No ► No ► No ► No

FTA Canada ► Some ► No ► No ► No ► No ► No ► No

World Trade

Organisation

(WTO)

USA, China,

Japan

► WTO tariffs

► Unilateral

options

► No ► No ► No ► No ► No ► No

Customs and trade considerations post Brexit


► Trade with EU Members may be restricted

► Trade barriers (Tariff and non-Tariff) require negotiation

► Customs compliance burden may increase

► Rulings and EU wide authorisations under EU legislation will lose it’s validity outside UK

► Trade with non-EU countries: uncertain

► Trade barriers (Tariff and non-Tariff) require negotiation

► FTA benefit is limited to UK content (instead of EU wide content)

► HMRC has discretion to facilitate trade and customs

► Simplified export procedure (e.g. Oil & Gas exports)

► Reduction of compliance cost

► FTA negotiations are not restricted by all EU Member States

VAT scenarios post Brexit

Example EU

Directives/

Case Law

Cross

Border VAT

Rulings

Freedom

to set VAT

rates/law

Free

movement

of goods

Import VAT EU

Statistical

reporting

Triang-

ulation

VAT refunds

EU Special

Status

► Yes ► Yes ► No ► Yes ► No ► Yes ► Yes ► VAT refund

directive

EEA ► Norway ► Persuasive ► Persuasive ► No ► Part ► No (for

agreed

products)

► Part ► No ► 13th D

Bi-lateral

agreement/

Customs

Union/

WTO

► CH

► Turkey

► Singapore

► Canada

► No ► No ► Yes ► No ► Yes ► No ► No ► 13th D


VAT considerations post Brexit

Trade with EU becomes more complex for reporting:

► UK VAT numbers no longer in the VIES system - changing the rules for demonstrating that the UK

party qualifies as a VAT taxable person

► Proof of export to obtain 0%

► UK and EU VAT reclaimed through a new system as the VAT Refund Directive will no longer apply

► Distance selling requirements

► Place of supply of services – MOSS and general changes (registration and compliance)

HMRC discretion on rulings and law

► CJEU case law may no longer apply to UK VAT issues

► Cross-border rulings may cease to be valid as far as the UK part is concerned

► Freedom to set liabilities and rates

► Cross-border supply chains need to be reviewed, including arrangements for maintenance & repairs,

spare parts etc.


Liability/Rates

►FS exemptions (Andersen)

►Pensions (PPG, ATP, HMRC transitional period)

►Ebooks – zero rating?

►Domestic energy – 5% rate reduced

►Energy saving materials – reduced rate

►Land related services (EC notes due Jan 2017)

►Booking fees (Bookit/NEC)

►Single/composite supplies (CPP)

Procedural

►Holding Companies

►EU branches (Skandia)

►Import VAT on VAT return or C79

►MOSS/register non-established service suppliers

►TOMS - wholesale supplies/ transport company

►Establishment/intermediaries

►Triangulation/transport services

►Elida Gibbs (cashbacks/discounts)

►Interest on refunds

EU Precedent and Lobbying

EY Indirect Tax Approach


Planning for indirect tax uncertainty


Phase 1

ImplementChange managementMonitoring &

AdvocacyImpact Assessment

Phase 2 Phase 3 Phase 4

►Modelling

►Tax issues/treatment

►Business issues

►Cash

►Industry insight

►Business

engagement

►HMRC/Treasury

►Industry bodies

►Reassess impact

►Compliance

►Systems

►Processes

►Customers

►Suppliers

►Budget

►Model change

►Testing

►Go Live

►Monitor

EY Brexit Impact Modelling


Impact Assessment Outcome 1


Impact Assessment Outcome 2


Industry insight


Financial Services – Paul Cockayne

High-level comparison with other models:

Specific areas where the UK has taken a more liberal approach to the EU legislation and case-law:

► Arthur Anderson (C-427/03): UK have not formally implemented this decision into UK law despite the amount of

time that has elapsed since the judgment.

► Skandia (C-7/13): HMRC have interpreted the judgement in a way that is generally favourable to UK financial

service providers. Has any pressure to ‘fall in line’ abated?

► Financial intermediary services – UK’s implementation into domestic legislation is arguably broader and more

favourable than the Principal VAT Directive. Will this be the basis of a wholesale departure?

UK Referendum on EU membership

UK Currently Norway Switzerland

Definition of Financial services Identical to VAT Directive Similar to VAT Directive Similar to VAT Directive

Input tax Credit for FS Supplies to EU countries No No No

Input tax Credit for FS Supplies to Non-EU countries Yes No No

Head office to Branch Supplies Disregarded Disregarded In scope

Consideration of CJEU caselaw Binding Persuasive No consideration

Technology Media Telecoms – Jo Crookshank

Areas of focus for the sector - services

► Use and enjoyment rules? Significant impact if these are removed.

► Voucher Directive – how/will this be implemented in the UK? Businesses may welcome simplification

► B2C cross border supplies of services – 2015 rules? How will the UK operate these rules going forwards? Will

Article 9a (intermediary supplies) be revisited by the UK tax authorities and if so is there greater risk of divergence

from EU rules?

► Opportunities for zero rating – e-publications?

► Tour Operators Margin Scheme review? Will UK tour operators want to maintain the status quo?

Q: Should a VAT double taxation treaty form an essential part of the Brexit procedures?

Specific areas where the UK may revisit EU legislation and case-law:

► C-520/10 (Lebara) – cross border supplies of phone cards which resulted in the introduction of new SPV legislation –

opportunity for HMRC to revisit this?

► C-479/13 (Commission v France) and C-502/13 (Commission v Luxembourg): e-books/journals currently

standard-rated under EU law – lobbying opportunity for zero-rating (as for printed matter)?

► C-607/14 (Bookit/NEC): CJEU upheld taxability of booking services (which was also HMRC’s position) – opportunity

to re-open debate on exemption for these services?

UK Referendum on EU membership

Industry insight

EY Indirect Tax approach

► Regular industry updates

► Indirect Tax Brexit Webcasts and news

► Share consolidated impact assessment output

► Work with HM Treasury and HMRC Policy

► Lobbying

► Next event 29th September 2016

Industry Leadership

► Jo Crookshank – Technology Media

Telecommunications

► Kal Siddique – Energy

► Andy Bradford - Aviation

► Jamie Ratcliffe – Consumer Products

► Simon Baxter – Retail

► Paul Cockayne – Financial Services

► Charles Brayne – Life Sciences

► Mitchell Moss – Litigation

► Martyne Pearson - Travel


So what’s next?


The future landscape…

► Unilateral free trade or introduction of tariffs in the UK?

► FTA agreement with EU?

► Grandfathering of existing EU FTAs or new FTAs?

► Invest in modernizing the customs system?

► Access to direct tax directives or improved double tax treaties?

► Points system for migrants?

► Lower CT rate to improve business climate?

► Incentives


Meanwhile other developments carry on …

► BEPS is ongoing

► EU Vouchers

► Pensions changes

► Finance Act 2016 Royal Assent?

► Autumn Statement – November/December 2016

► Finance Bill 2017?


Questions


Key messages

► “Keep calm and carry on”

► Changes will take time to come into effect

► Use the time to plan for the future

► Scenario and impact planning is possible

► Identify the risks to your business across the areas

► Engage with government(s) and trade/industry bodies

► Form or be part of Brexit Steering groups

► Join EY Indirect Tax Industry focus groups and communications



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post eu referendum – managing the indirect tax … eu referendum – managing the indirect tax...

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