Showing posts from tagged with: UK

Measuring Brexit Costs

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.
KPMG Ireland is a Platinum sponsor of the Export Industry Awards.

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Ireland’s Maritime Sector is Key Driver of Economic Growth

As a maritime nation and as an economy, we are heavily dependent on seaborne transport, which facilitates international trade and is an indispensable part of a supply chain that links Irish industry to world markets. Our ports and maritime services also support Ireland’s tourism industry by providing ferry services to and from ports in the UK and Continental Europe. In meeting the needs of trade and tourism, the maritime industry has shown itself to be flexible and resilient and has demonstrated the ability to respond appropriately to growth and contraction in the Irish economy.

A recent report by the Socio-Economic Marine Research Unit (SEMRU) of NUI Galway shows that Ireland’s marine economy is outperforming Ireland's general economy, with the shipping and maritime services sector, comprising Irish sea-based transport operations for freight and passenger transport, as well as associated services, playing a key role in driving growth.

In 2016, Ireland’s marine economy had a turnover of €5.7 billion, 37% of which is attributable to the shipping and maritime services sector. The direct economic value of Ireland’s marine economy was €1.8 billion in 2016, or approximately 0.9% of gross domestic product (GDP), which represents an increase of 20% on 2014.

This positive trend is also reflected in a report released earlier this year by the Irish Maritime Development Office (IMDO), the Irish Maritime Transport Economist, which records a 2% increase in total port traffic in 2016, reaching the highest level of throughput achieved since 2007. Statistics for 2017 show continued growth, with shipping and port activity in the Republic of Ireland rising by 7% in the first quarter of 2017 when compared to the corresponding period of 2016. It is clear that our maritime sector can respond to the needs of our growing economy, and indeed has a vital role to play in supporting the development of our national economy for decades to come.

We are delighted to be involved with the Export Industry Awards as sponsor of the Maritime Services Company of the Year category again this year, and we strongly encourage those involved in the maritime industry to put themselves forward to receive recognition for the significant role that they play in the growth and development of the export industry in Ireland, which contributes directly to the wider growth of Ireland’s economy.

Liam Lacey, Director, Irish Maritime Development Office

The Export Industry Awards recognise the remarkable achievements of companies working in the export industry.

For more information and to apply visit bit.ly/2q1JN2Y. There is no application fee and companies are welcome to enter more than one category.

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What now for Customs and Brexit?

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.

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Impact of Brexit on VAT

Since the introduction of the Single Market in 1993, there has been no VAT charged on cross border supplies of goods to business customers (B2B) based in other European Union (EU) Member States and no requirement to pay VAT on import when an EU based business brings goods in from another Member State.

Instead, supplies of goods between VAT registered entities within the EU are ‘zero rated’ for VAT purposes, provided that the customer’s VAT number in a different EU Member state is obtained and there is proof that the goods have left the country of departure.

Under the current system, the onus is on the customer to self-account for any VAT arising  on the intra community acquisition of the goods on a reverse charge basis, at the rate of VAT prevailing in the country of arrival, with VIES/EC Sales and Intrastat filing obligations generally arising as part of the related procedure.

So what will change post Brexit when goods are being supplied to business customers based in the UK, including Northern Ireland?

Ultimately the VAT implications will depend on the outcome of the forthcoming Brexit negotiations between the UK and the EU.  If we assume that trading with the UK post Brexit will be similar to trading with any other non-EU country the following scenarios are likely to prevail in addition to any Customs related implications:

  • VAT on importation will become payable on the value of goods being brought into the UK from EU Member States (and vice versa) by both business customers and consumers (allowing for likely de minimis amounts on which VAT will not be collected).The Value for VAT purposes includes the cost of the goods, the related freight & insurance and the customs duty.  In these circumstances arrangements will need to be made by importers of goods to discharge any VAT arising on import or alternatively, to put a VAT deferral account in place which involves lodging a bond with the Tax Authorities. Otherwise the goods being imported will not be released by the Authorities until the related VAT liability is paid.
  • VIES/EC Sales listings and Intrastat filings which supplement details included on VAT filings will no longer be relevant for supplies of goods and services into the UK as these only pertain to cross border supplies between EU based suppliers
  • UK VAT Rates may differ to those currently in existence (standard rate is now 20%) and it is possible, albeit unlikely, that the UK could reduce its VAT rates significantly to encourage trade, as it will no longer be confined by the EU requirements to maintain VAT rates within a certain range.
  • VAT registration may be required in the UK by EU based suppliers maintaining ‘call off’ stocks of goods, there for draw down by single customers, where simplification measures currently exist to avoid the necessity for such registration.UK Registration requirements may also crystallise in circumstances where simplified triangulation arrangements currently applicable involving a chain supply between ‘VAT registered’ entities in 3 different EU Member States enables the avoidance of a VAT registration by an intermediate supplier.  It is also possible, albeit unlikely, that the UK could oblige non-UK established service providers to register for VAT in the UK in respect of the provision of certain services to UK VAT registered entities where the VAT on such services is currently accounted for by the recipient of the services under reverse charge.
  • UK VAT which is correctly chargeable to businesses established in other European Union Member States which are not obliged to register for VAT in the UK, will no longer be reclaimable under the Eighth VAT Directive Electronic VAT Refund (EVR) scheme. This VAT will most likely have to be reclaimed under the Thirteenth VAT Directive Claim procedure which currently applies to businesses in other non-EU Countries.
  • The VAT Margin schemes currently in operation throughout the EU which apply to sales of second hand goods (including cars), works of art, tour operators/travel agents etc. across the European Union may no longer apply in the UK post Brexit.
  • Distance Sales (i.e. sales of goods from a business in one EU Member State to Consumers based in other EU Member Satiates) thresholds will no longer apply in respect of supplies of goods from the EU to UK based consumers and in respect of supplies of goods to EU based consumers by UK based suppliers.

 

It will also be a lot more cumbersome for goods to be supplied cross border to consumers both by UK suppliers into the EU and EU suppliers into the UK due to VAT and possibly Customs duty liabilities crystallising at the time of importation.

At least some of the above scenarios will result in additional administrative requirements and cash flow management costs.

Additional Administration costs include staff costs in preparing and processing the necessary back up detail, obtaining professional advice regarding the VAT implications of trading with the UK, registering for VAT and additional compliance obligations – filing VAT returns etc.

Cash flow management will become critical when managing the time lag between paying and reclaiming VAT because if not managed effectively it can give rise to financial negative cash flow implications / additional working capital requirements as VAT on importation of goods may not be refunded for a matter of months or even longer.

Under the likely new regime VAT physically paid on importation or paid using a deferral account should continue to be reclaimable in line with current rules underpinning entitlement to VAT recovery with Single Administration Documents (SADs) being required when reclaiming VAT paid on import in Ireland and C79s in the case of UK VAT on import.

So what VAT steps should exporters and importers take now in preparation for Brexit?

Be Brexit ready – Start to review your business strategy with regard to the likely impact of Brexit on your business and try to minimise any negative VAT impact as much as possible.  Please see below for further suggestions on how you can become Brexit ready:

  1. VAT deferment facility – This should be considered in the context of bridging the gap between paying the VAT on importation and reclaiming it.
  2. Delivery Terms - Serious consideration should be given to the terms of delivery agreed with suppliers. DDP as opposed to DAT/DDU should be preferred.  This also needs to be considered from a commercial perspective.
  3. Review your supply chain – Have a Brexit Impact study carried out on your business with a view to identifying what steps can be taken at this stage to avoid potential exposure to your business.

 

BDO is actively working with a number of our clients to examine their supply chains to determine the risks of Brexit to their businesses.  We are considering what alternative strategies can be taken to plan as early as possible, rather than them running the risk of being exposed following the conclusion of the negotiations between the UK and the EU.

For more information about our partnership with BDO Ireland click here.

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Accessing New Markets – Using EU Trade Agreements

With the increasing concern on the additional costs companies will face on accessing the UK market in the future this is now a good time to look at leveraging off current EU Trade Agreements. The EU is extremely active in negotiating trade agreements and there are significant opportunities for companies looking to diversify their markets outside of the UK and Continental Europe.

It is also worth remembering that once the UK leaves the EU they will have to negotiate independent trade agreements outside these EU agreements.

In our first newsletter we outlined the benefits of Canada as an opening market for Irish Companies with the new CETA agreement. Over the last month there has, in addition, been an extremely strong focus on this market with visits by An Taoiseach and the EU Commission for Agriculture, Phil Hogan. For the Irish Food and Drink Industry the Canadian FTA is of particular benefit as it opens up the Canadian Market to exporters of cheese, wine and spirits, fruit and vegetables, and processed food products, which is not typical of Trade Agreements. In fact Commissioner Hogan recently tweeted that “once CETA” is fully in place, Europe will be able to export nearly 92% of its agricultural and food products to Canada duty-free”

However along with the Canadian Agreement there are many other agreements as can be seen by the EU infogram below.

Exporters looking to develop new markets could therefore look at countries such as

To name but a few.

In our next newsletter we will expand on how to qualify, under rules or origin, to take advantage of these Trade Agreements. We will also update on ongoing trade and market access discussions taking place with countries such as Japan, Indonesia and China.

For more information about our partnership with BDO Ireland click here.

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Brexit and Borders

As we move into the negotiation and “divorce” phase of Brexit the main questions being asked by Irish Exporters are

Will there be additional tariffs to consider

Will there be border controls on trade with the UK

While nothing is known with certainty, particularly in relation to tariffs, there are at this point some extremely likely outcomes which businesses need to start preparing for.

Tariff and Duty Costs

The question on the introduction or not of tariffs is probably the most “known unknown”. The answer will depend on whether, or not, there is some form of (Free) Trade Agreement concluded between the EU and the UK. This it-self will only be known after the conclusion of, or at least positive developments in the “Divorce Negotiations”.

At a high level there are two possible outcomes:

A Free Trade Agreement is concluded which allows for a 0% duty rate on trade between the EU and UK.
If this is concluded Exporters still need to be aware of two potential complications
i) Most FTAs require companies to prove their goods are “originating” in order to benefit from the preferential duty rate. This in itself can be a complex process.
ii) Most FTAs do not cover agricultural products or restrict the benefits for agricultural products. While this may be unlikely for an EU-UK Trade agreement it still needs to be considered.

No FTA type agreement is reached and Tariffs are imposed.
In this case the tariff on import into Ireland/ the EU will be the duty rate currently applied by the EU. The tariff on import into the UK will be set independently by the UK Government. This could range from 0% to EU tariff rates to WTO bound rates.

A prudent approach therefore is to assess the impact of EU/WTO rates in looking at the potential additional duty cost that might arise on imports into the UK; and assess the impact of the current EU rates on imports into Ireland from the UK.

 

Borders

The key question at present, possibly more than tariffs, is whether there will be border controls introduced. This tends to break down into two aspects

Will there be border controls, and the requirement for Export and Import Declarations, at the Sea Ports and Airports?

Will there be border controls, and the requirement for Export and Import Declarations, at the North-South Border?

The unfortunate answer is that it is extremely difficult to see a situation where, under current EU legislation, there are no border controls.

We do have to look however at what this means.

Firstly will there be a requirement to lodge Export and Import declarations (SADs in Ireland/C88 in the UK)? It is almost impossible to see a situation where this will not be a requirement once the UK is a non-EU Country.

What does this mean?

Customs Declarations require 54 boxes of information to be supplied to Revenue, from details of the consignor/consignee to customs value to tariff classification to weights. Probably the most complex part of this is the requirement to provide the tariff classification.

These Export and Import Declarations need to be lodged with Customs, electronically, prior to export/import. Most goods will obtain instant clearance (95%) but some goods will require further checks before being allowed to clear. In all cases however these Declarations can be subject to post-clearance audit any time within the next three years.

It is important to remember that the lodging of Export and Import Declarations is no different to lodging any Tax Declaration and therefore the information supplied to Customs needs to be 100% accurate and correct or you may be subject to additional duty costs, fines and penalties (As with any Tax Audit).

The next concern is the type of border controls which might be introduced by Customs. At this point this is not 100% clear but ideally, will involve the use of electronic systems to minimise delays. As we know from many of the recent news reports this is a critical aspect for Revenue at present.

What next?

At this point most companies impacted by trading in the UK are looking at reviewing their supply chains and assessing the impact of additional tariff and non-tariff barriers on their businesses.

This modelling can be done using many resources. Enterprise Ireland, for example recently launched the ‘Brexit SME Scorecard’, a new interactive online platform which can be used by all Irish companies to self-assess their exposure to Brexit under six business pillars. Based on answers supplied by the user, the Scorecard generates an immediate report which contains suggested actions and resources, and information on events for companies to attend, to prepare for Brexit. The platform can be accessed at www.prepareforbrexit.ie

We would therefore recommend that companies pro-actively engage in completing this type of analysis and increase their knowledge of Customs.  This is particularly important for those companies who sell only within Europe, and have a significant portion of sales in the UK,  as this may be their first interaction with the Customs Authorities.

 

For more information about our partnership with BDO Ireland click here.

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Customs Classification – the What? Why? & How?

Traders who import or export goods into or out of the EU and following Brexit, the UK are required to provide a classification code for the customs clearance of each of their goods being shipped. When asked to supply a classification code by a clearance agent a number of questions arise, namely;

  • What are customs classification codes?
  • Why do traders need to be aware of them?
  • How do you classify goods for customs declarations?
  • What to do if there is uncertainty regarding the correct classification?

So what are customs classification codes?

Customs classification codes are often referred to as HS / HTS Codes, commodity codes or tariff codes. They consist of a 10 digit code for imports or an 8 digit code for exports. There is a worldwide Harmonised System which around 180 countries apply, which aims to harmonise the first 6 digits of the code across these countries. However, the interpretation of the legislation can differ between countries, so if a US supplier has a HS code on the commercial invoice it may be dangerous to assume that this code will also apply when importing into the EU.

Why do traders need to be aware of them?

Traders need to be aware of the correct classification of their products for a number of reasons;

  • Determines Rates of duty and other taxes at import – the classification of an imported good drives the customs duty rate for the imported goods. The duty rates can vary between 0% up to 25% for certain food items.

The classification of the good also determines if anti-dumping duty or agricultural levies will apply.

  • Origin requirements/benefits for preferential trade – this is particularly important when considering the post BREXIT era. Many traders believe that if a Free Trade Agreement (FTA) is in place then customs duties and declarations will no longer apply. However, the reduction of customs duties in a FTA are conditional, with the condition rules differing between classification headings. Therefore, it is required that the imported goods are correctly classified and a customs declaration is lodged even when a FTA exists.
  • Whether goods are subject to restrictions at import or export
  • Avoid delays or seizures
  • To avoid penalties and post-entry audit issues

The Importer is responsible for correctly classifying their goods on import and export.

Many traders rely on their clearance agent or HTS codes on the supplier invoice to classify their products. However, as an international trader you should be aware of the significance of the data on the customs clearance declaration or the Single Administrative Document (SAD). In the event of a post clearance check some of the more obvious information that a customs official may look out for is consistency of the information provided in the SAD. Take for instance a manufacturing company which imports plastic pipes as part of its operations. In box 31 of the SAD the product description is “Pvc plastic piping 50mm” then the Revenue officer would expect to see a tariff heading 3917 …., In box 33 of the SAD indicting that the product is “tubes, pipes and hoses of plastic”. However, if it is found that the tariff code provided is 4006 …., which covers “tubes … of rubber” this would be a red flag and could result in a post clearance customs audit.

Taking the above example, tariff heading 4006 which the importer has been using, attracts a 0% duty rate upon import into the EU. The correct tariff heading 3917 attracts 6.5%, so if Revenue go back 3 years (further in cases of suspected fraud) then 6.5% of the total shipments of plastic piping could mount up to a significant unbudgeted expense.

Regardless of how the error occurred, it is the importer who will be assessed for this duty which is generally not recoverable, so is a dead cost to the business. Furthermore, if the importer had been aware that the import of this product would have a duty impact prior to commencing importation, they may have been about to avail of customs economic (or special) procedures to suspend or eliminate the duty on import.

How do you classify goods for customs declarations?

The legal document which is used for classification in the EU is called the Combined Nomenclature (CN);

It is made up of:

-21 Sections

-99 Chapters

-960 pages

-Approximately 5,000 headings and subheadings

Classification is determined according to the terms of the headings and is subject to the Section and Chapter notes which are legally binding.

When classifying the product it is important to understand; the make-up of the product, its function, how it is presented at import, if it is an unassembled or unfinished product and the essential character of the product.

There are also guides to assist with the classification process such as the WCO Explanatory Notes and databases such as the eBTI database and TARIC in the EU and CROSS rulings in the US.

What to do if there is uncertainty regarding the correct classification?

There may be times when the classification of a good could fall between two or more headings. In other cases the risk of getting the classification incorrect could be too great in terms of extra customs duty or if one heading applied anti-dumping duty whilst another did not. Additionally, diverging codes could lead to falling foul of import/export restrictions if the classification of a product was deemed incorrect post clearance.

As the penalties for non-compliance can be severe in both financial and reputational terms, certainty is required by traders. The solution in these instances is to obtain a decision from revenue which is known as a Binding Tariff Information (BTI).

A BTI is legally binding on the holder and on all customs administrations within the European Union. Therefore, it provides legal certainty for its validity period of 3 years. The processing time for a BTI can be up to 120 days, so it is important to plan ahead before shipping materials.

Following the introduction of the Union Customs Code, the right to be heard has been removed for BTI applications. Therefore, if a trader submits a complete application to Revenue, Revenue can issue the BTI to an alternative heading without engaging in a further consultation process with the applicant. Whilst the option to appeal the decision remains, whilst the appeal is ongoing the BTI issued will be legally binding on the applicant. We would therefore advise that professional advice is sought prior to submitting an application, to allow the best chance of a satisfactory outcome.

 

For more information about our partnership with BDO Ireland click here.

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Brexit: FAQs

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. Will there be a border with the UK?

As a non-EU country the UK will have a border with the EU.

 

  1. 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):

  1. Operate a common external tariff on all imports so that no matter which country you import into the duty rate applied is identical
  2. Negotiate Free Trade Agreements as a bloc.

 

  1. 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.

 

  1. 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.

 

  1. 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"

 

  1. 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.

 

  1. 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.

 

  1. 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:

  1. Review your supply chain to determine where goods may be caught by customs controls and documentary requirements
  2. Determine the options for alternative routes
  3. Assess your company’s ability to handle these additional requirements
  4. 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.

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Canada – Opening opportunities for Irish business

On the 15th February 2017, The European Parliament voted in Strasbourg for the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, concluding the ratification process of this deal at the EU level. The deal was approved by 408 votes to 254, with 33 abstentions.

Key features of CETA include:

  • Eliminates most tariffs:On the day that CETA enters into force, it would eliminate 98 percent of all tariffs on goods and services between the EU and Canada.
  • Cuts red tape
  • Reduces barriers to trade
  • Provides access to public contracts at all levels
  • Improves access for trade in services
  • Improves labour mobility
  • Promotes and protects investment

The intention is for the agreement to be “provisionally applied” almost in its entirety after Canada has amended some of its own legislation concerning among others intellectual property, copyright and patent laws. This could take place as early as April of this year, at which time most customs duties between the EU and Canada will be removed.

If a Member State would not ratify the agreement, the European Council would then have to decide if the refusal is “permanent and definitive”. Until this happens the agreement will continue to be applied.

CETA and Brexit

As the UK will still be a member of the EU when the CETA agreement is provisionally implemented, they will be able to enjoy the benefits of tariff free trade while it remains a Member State. However, it is much less certain whether the UK will still be in the EU by the time CETA has been ratified by all Member States, as this may take a number of years. While the position is not entirely clear, it is highly doubtful whether CETA would continue to apply to the UK once it had left the EU.

This uncertainty would make Ireland an attractive alternative for Canadian companies wishing to establish an entry point into the EU market. For Canadian companies who have a UK base, it would make sense to consider establishing a presence in Ireland to ensure continued access to the EU market post-Brexit.

There are a number of advantages that Ireland offers that would be of interest to Canadian investors; English-speaking, young and educated workforce, common law system, competitive corporate tax regime and a strategic geographical location between Canada and mainland Europe.

 

Interaction with other Trade Agreements

The CETA deal now means that Ireland as part of the EU, has trade agreements in place with two out of the three participating countries of the North American Free Trade Agreement (NAFTA), as a preferential trade agreement has been in place with Mexico since 2000 (2001 for services).

Whilst the Transatlantic Trade and Investment Partnership (TTIP) won’t happen under President Trump’s tenure, forward thinking EU companies may now be able to export EU products to Canada tariff free under CETA and if they undergo sufficient working in Canada they could access the US market tariff free under NAFTA.

Currently, EU exports of some frozen beef products to the Canadian market are dutiable at 26.5%. Some food preparations that contain 50% or more by weight of dairy content are dutiable at 274.5%. Therefore, the barriers to trade can be clearly quantified for prospective exporters to the Canadian market. By removing these tariffs, Canada is opening up its market to suppliers who would have been previously deterred by the high tariffs imposed on their goods.

There is clear proof of the benefits enjoyed by the EU from free trade agreements. As an example, EU exports to South Korea have increased by more than 55% since the EU-Korea trade deal entered into force in 2011. Exports of certain agricultural products increased by 70%, and EU car sales in South Korea tripled over this five-year period. It is estimated that EU companies have saved €2.8 billion in reduced or eliminated customs duties since this agreement was applied. The Korea agreement was also provisionally applied during its ratification process which is still ongoing.

How to take advantage of tariff free trade

For the free trade agreement to apply to your imported or exported goods, they must be deemed to have “preferential origin” status.

In effect, this means that goods must be either;

  • manufactured from raw materials or components which have been grown or produced in the beneficiary country or, should that not be the case,
  • at least undergo a certain amount of working or processing in the beneficiary country. What constitutes sufficient working or processing depends on the rules applicable to the tariff heading of the product.

Therefore, it is important to be clear on the correct classification of your products. If either the classification or the origin status of your goods are unclear, it is possible to seek confirmation from Revenue by way of a binding origin or binding tariff decision.

 

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