As of 2016, the value of traded goods and services each week between Ireland and the UK is €1.2 billion. Meanwhile over a year since the UK referendum we still don’t have any real clarity on what the final agreement between the EU and the UK might look like. Given such uncertainty, what can businesses do to identify some of the trade-related implications as a result of Brexit under different scenarios?
Many of these scenarios point to the probability of the UK leaving the customs union, and businesses involved in Ireland-UK trade are now assessing the detail of what the financial impact could be. Unless there is a tariff-free EU/UK trade agreement, Irish goods will be subject to tariffs and the EU’s external border will run through Ireland, with a customs regime between the two jurisdictions. For Irish exporters with imported inputs in their products there are significant implications.
Businesses should consider identifying their impacted supply chains now and quantify the financial consequences of potential additional customs duties, VAT and trade compliance costs. Software such as that developed by KPMG can help businesses deconstruct their supply chains and identify where the costs, bottlenecks and opportunities may lie.
Interrogating your data from different angles is critical. Using VAT and Customs filing data, the software can produce a bespoke report quantifying the key customs duty and VAT impacts arising from Brexit. The tool maps the flows of goods into and out of the UK, giving visibility over the elements of the supply chain that are most exposed to additional cost or supply chain risk as a result of Brexit.
Businesses can then work to identify specific solutions to the issues raised, which could involve alternative supplier sourcing, revision of trade terms or changes to the logistics process. Regardless of possible eventual Brexit outcomes for Ireland, businesses who understand their supply chains now and use innovative technology to quantify product, customer or supply chain exposures will be amongst those best placed for the post-Brexit world – whatever that brings.
Marie Armstrong is a Tax Partner with KPMG in Dublin.
For more details on planning for Brexit and KPMG's indirect tax impact assessment tool, download the pdf by clicking here.
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Guest Blog Post | August 8, 2017 | 0 comments
Theresa May ran a Conservative campaign based on “Brexit means Brexit” which for May meant a Hard Brexit. In May’s vision of the future of the UK this meant leaving the Customs Union and leaving the Single Market.
For Irish Traders this meant the imposition of customs duties on trade with the UK, the imposition of border controls and potential complications for importing UK goods in terms of conformity with EU standards.
For the Agri-Food industry an additional nightmare would be the need for agricultural products to be imported from EU approved plants and the requirement for import licenses.
What Brexit means is still unclear
Brexit might still mean departure from the Single Market and Customs Union as planned by Theresa May and re-confirmed by the UK Chancellor of the Exchequer, Philip Hammond in an interview with the BBC on the 18th June.
However there may still be a Free Trade Agreement concluded which will minimise the impact of customs duties and tariffs.
Finally, with the DUP now entering a confidence and supply arrangement with May the views of Northern Ireland businesses will have to come front and centre in the negotiations. Arlene Foster has made it very clear that the DUP is against a hard border with the Republic of Ireland. For the border this can only mean good news and a focus on what will be good for business trading North to South (which equally impacts positively on South-North trade).
What steps should Exporters be taking at this point?
Essentially this has not changed from the advice provided in previous newsletters.
Firstly review the supply chain and determine the information and other requirements which will be necessary to enable you to complete Import/Export Declarations and minimise any delays at customs.
Secondly review your products and determine the best, likely and worst case scenario in terms of additional duty rates.
Thirdly upskill and train staff to understand and implement the new requirements.
What could a “practical” Brexit look like in trade terms and how should business now look to plan ahead for March 2019?
1. Trade Agreements and Tariffs
The first question often asked is whether or not customs duties will apply on imports into the UK from Ireland or on import into Ireland from the UK. At this point there is no answer to this question as it will depend on the type of agreement the UK and EU conclude and the scope of that agreement (most agreements have limited applicability to agricultural products).
When people refer to a Hard Brexit or a Soft Brexit it generally refers to the UK being outside the EU/Customs Union/Single Market (Hard Brexit) or remaining part of the Single Market or Customs Union.
In the former case this would mean the UK being treated as a third country subject to standard MFN (WTO) rates. This can range up to 10% for industrial products and up to 50% for agricultural products.
In the case of a soft Brexit however any of the following scenarios could apply:
- The UK and EU agree a Customs Union with the EU – similar to the current arrangement for Turkey. Under the Turkey Customs Union, Turkey agree to adopt the EU’s common external tariffs on third-country imports, as well as all EU preferential trade agreements concluded with third countries. However, Turkey does not have a say in the negotiations of EU Free Trade Agreements with third countries (despite being bound by them in relation to imports). This would mean therefore that the UK apply the EU’s Customs Tariff to all imports into the UK. Goods subsequently imported into the UK or EU would not be subject to an additional duty payment on movement to the other’s territory (subject to an ATR cert to confirm the status of the goods). The UK would be subject to EU Free Trade Agreements (FTA’s) and would have to allow FTA countries preferential access to the UK market (It is to be presumed that they would also easily agree UK access to the FTA countries market).
- EEA (Norway, Iceland, and Lichtenstein)/EFTA (Switzerland) type arrangement.
The EEA countries have full access to the Single Market in the same way as current EU Member states on the basis that all EU single market legislation is fully implemented in their countries. In addition they must apply the four freedoms. EEA countries do not however have a say in the EU decision-making process on relevant EU legislation and policies.Goods can move without customs duties where goods qualify as “originating products” (subject to a EUR1 document to prove originating status).
- Preferential Trade Agreements – The EU has concluded a myriad of trade agreements such as the Canada Trade Agreement and South Korea Trade Agreement. Each agreement is specific to the party and what they agree to. In general however these agreements provide for preferential duty access to each other’s market subject to goods qualifying as “originating” – as per the EEA/EFTA agreements above.
2. Border Controls
Regardless of the type of agreement concluded, once the UK becomes a non-EU country a customs declaration will still be required on export from the EU and import into the EU. In addition some form of Border control will have to apply.
Even with imports from Turkey, which has a Customs Union with the EU, a SAD is required to be lodged along with an ATR document to prove that goods are in free circulation in the Union.
Similarly with the Norway- Sweden border there are customs controls and the requirement for customs declarations. On the Norway-Sweden border for example there are 10 customs checkpoints with HGVs required to travel via one of these road border crossing points.
However, with an EEA/EFTA type arrangement or a Customs Union then the possibility of an electronic border and customs facilitation stations, as envisaged by Revenue, becomes more likely. While this would simplify the position on the North-South border in terms of movement of goods it does not negate the need for customs compliance and declarations to be submitted to Customs to account for the movement of those goods.
For more information about our partnership with BDO Ireland click here.
BDO Ireland | June 20, 2017 | 2 comments
- When will the UK finally leave the EU?
At present it looks like this will be April 2019. Theresa May intends to trigger article 50 in March and, from this point, there are two years allowed to complete the exit negotiations. This can be extended if all Member States agree.
At the same time the UK need to negotiate a new form of Trade Agreement with the EU. It is generally believed however that this will be difficult to achieve in two years.
- What happens if there is no Trade Agreement in place in April 2019?
This is not fully clear. There is a view that a transitional agreement will be put in place however this will depend on whether the trade negotiations are proceeding well.
If not, the UK will revert to being a 3rd Country for the purposes of trading with the EU - essentially it will be treated similarly to the US in terms of imports and exports.
- What does this mean?
If there is no Trade Agreement then all imports from the UK will be subject to EU import duties.
These duties range from 0% to 14% for industrial goods, 8% to 50% for Agri-food products and 12% for clothing.
- Will there be a border with the UK?
As a non-EU country the UK will have a border with the EU.
- How does this differ from the current situation?
This differs from the present situation whereby all 28 EU Member States (which includes the UK) have a common border with all countries outside the EU. This is called a Customs Union and means that all members of the Union (the EU 28 + Turkey and Andorra):
- Operate a common external tariff on all imports so that no matter which country you import into the duty rate applied is identical
- Negotiate Free Trade Agreements as a bloc.
- Why would the UK leave the Customs Union?
Theresa May has stated she wants the UK to have the ability to set its own tariffs and to negotiate its own trade agreements. This is fundamentally incompatible with the rules of a Customs Union.
- Will the EU and UK negotiate a preferential trade agreement instead then?
It is assumed that some form of trade agreement would be in everyone's interest however this will depend on the negotiations which take place over the next two years.
The most recent comprehensive trade agreement was concluded between the EU and Canada and would provide a good model. However this agreement took eight years to agree.
- How will this affect the movement of goods?
Regardless of whether, or if, a Trade Agreement is concluded all companies moving goods between the EU and the UK (and vice-versa) will be required to lodge import and export declarations with the relevant authorities. All goods moving across or through the borders therefore will be subject to customs controls and intervention in the same manner as applies to any non-EU import or Export. If we look at the EU Canada FTA all imports and exports will continue to require import and export declarations to be lodged with Customs regardless of the applicable duty rate. In addition goods will only qualify for the reduced (or preferential) rate if you can prove your goods qualify as "originating products"
- How do you qualify goods as "originating"?
This is a complex process. All goods have an applicable tariff code and each tariff code has a listed rule of origin. Therefore you first need to determine the tariff classification and secondly to check the applicable rule of origin for that heading.
A good rule of thumb is that goods are generally required to obtain 60% added value in the EU (to qualify as EU originating) or undergo a change of tariff heading between imported raw materials and finished products. Minimal processing operations or simple assembly operations do not qualify.
- What if I move my goods through the UK to get to Europe?
The recent IEA survey found that 2/3 of exporters transit their goods through the UK to mainland Europe and further afield. Goods currently move freely as part of this process and do not encounter any customs requirements. Going forward this will now be equivalent to goods moving out of the EU to get back into the EU.
It is hoped there will be transit agreements put in place to simplify the movement, however goods will still be subject to customs controls, transit requirements, and guarantees.
- What should I be doing now to plan for this?
There are several steps to take at this point. Primarily we would advise the following:
- Review your supply chain to determine where goods may be caught by customs controls and documentary requirements
- Determine the options for alternative routes
- Assess your company’s ability to handle these additional requirements
- Identify the additional information which will be required by Customs e.g. Tariff Classifications, Customs Origin, EU status of goods.
The additional time and cost involved in moving goods through a non-EU border are extensive and, unfortunately, there is no current scenario whereby this will not be a requirement for the UK if they leave the Customs Union.
It is also advisable to:
- Assess the impact of additional EU Import duty costs if introduced
- Assess the impact of WTO rates on any UK imports
While this would be worst case scenario planning it is important to be prepared for these costs. Customs duties are "sticking taxes" and, once paid, are generally not recoverable. They will therefore be a direct hit to your bottom line.
For more information about our partnership with BDO Ireland click here.
BDO Ireland | March 14, 2017 | 0 comments