BREXIT TAXATION AND CUSTOMS IMPACTS · 2018. 12. 13. · carousel fraud and the use of different...

Tax Strategy Group | TSG 18/08

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BREXIT – TAXATION AND CUSTOMS

IMPACTS Tax Strategy Group – TSG 18/08 10 July 2018

Tax Strategy Group | 18/08 Brexit – Taxation and Custom Impacts

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Introduction

On 23 June 2016 the United Kingdom voted to leave the European Union by a simple

majority of 51.9%.

This paper follows a ‘Brexit Taxation Issues Paper’ published for the Tax Strategy Group in

July 2017, and shall further examine the implications of the United Kingdom’s departure

from the European Union on tax and customs administration in Ireland. This work is an

input into the whole-of-Government contingency planning which is led by the Tánaiste and

the Department for Foreign Affairs and Trade.

The paper is divided into the following parts:

1. Overview

2. Budget 2018

3. Post Brexit Taxation Impacts

4. Post Brexit Customs Impacts

5. Conclusion


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1. Overview

1.1 On 29 March 2017, the UK Prime Minister, Theresa May, formally notified the

European Council of the UK’s intention to leave the EU. This marked the formal

commencement of the Article 50 process set out in the Treaty on European Union – the

withdrawal of a Member State from the Union with the negotiations formally underway

since then.

1.2 The current draft of the Withdrawal Agreement between the EU and the UK

provides for a transition period up to end 2020 during which the whole of the EU acquis

shall apply to the UK during the transition.

1.3 In effect, this means that, while the UK may no longer participate in the decision-

making processes of the EU, the status quo may be preserved as regards the UK’s

participation in the Customs Union and Single Market.

1.4 Beyond transition, the precise future arrangements for customs and taxation shall

depend on the outcome of future relationship negotiations between the EU and United

Kingdom

1.5 The expectation is that the negotiations on the Withdrawal Agreement would run

up to October 2018 in order to allow sufficient time for the Withdrawal Agreement to be

ratified by the UK, as well as by the European Parliament and the Council (Article 50),

before 29 March 2019 when the UK will formally leave the EU.

1.6 Under the Article 50 process, the objective is to reach political agreement between

the EU and the UK on a framework for the future EU-UK relationship, which would be

elaborated on by way of a political declaration accompanying the Withdrawal Agreement.

The detail of any future agreement can only be finalised and concluded once the UK is no

longer a Member State of the EU.

1.7 The Guidelines adopted by the March 2018 European Council reaffirm the Union’s

determination to have as close as possible a partnership with the UK after its withdrawal

from the EU. They note that the EU’s approach has been calibrated according to the UK’s

position, which limits the depth of such a future partnership. However, they also make it

clear that the EU is willing to revisit its position should the UK’s approach evolve.


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1.8 However, on the basis of the principle that nothing is agreed until everything is

agreed, the agreement reached on aspects of the Withdrawal Agreement, including

transition, is conditional on the UK fulfilling its commitments in other areas, including the

Protocol on Ireland and Northern Ireland.

1.9 The Commission services have published 76 preparedness notices for affected

stakeholders, setting out the consequences of the withdrawal of the UK from the EU

without a formal, ratified agreement between the UK and the EU.

1.10 The European Council in June 2018 called on Member States, Union institutions

and all stakeholders to ‘step up their work on preparedness at all levels and for all

outcomes’.

1.11 Acknowledging the above and that the precise future arrangement for customs and

taxation is therefore dependent on the outcome of the negotiation of the future

relationship, this paper seeks to outline some of the considerations that may be relevant

in respect of Indirect and Direct taxation (Section 3) and Customs (Section 4).


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2. Budget 2018

2.1 The Department of Finance began preparing for Brexit prior to the referendum in

2016, with work intensifying following the result and the invocation of Article 50 in 2017.

The decision of the United Kingdom to leave the European Union gives rise to

unprecedented challenges for Ireland across all economic sectors. Budget 2017 included a

number of measures to support those sectors most adversely affected. Building on Budget

2017, the measures announced in Budget 2018 demonstrate the Government’s continued

commitment to preparing the economy for the significant challenges posed by Brexit.

2.2 In Budget 2018, the Government has continued its policy focus of preparing the

economy and enhancing the resilience of the public finances to deal with the challenges

posed by Brexit. Specifically, it is currently projected that Ireland may achieve its medium-

term budgetary objective of a balanced budget in 2019. Complementing this, Budget 2018

further established the ‘Rainy Day Fund’, which provides a further counter-cyclical buffer,

and represents an important measure to strengthen the economy’s shock absorption

capacity. Legislation to establish the rainy day fund is currently being prepared and,

pending its approval, may begin capitalisation in 2019.

2.3 Budget 2018 also announced further dedicated Brexit responsive measures including:

A new €300 million Loan Guarantee Scheme for Brexit-impacted business and a

complementary €25 million Agriculture Brexit Loan Scheme – targeted at

enhancing the competitiveness of the businesses most exposed to Brexit;

A two fold increase of additional Brexit-related staff in state agencies;

The introduction of a Key Employment Engagement Programme (KEEP) – a new

incentive to attract key employees;

The Government has also committed to increasing public capital investment to c.4 per cent of GNI* and then maintaining investment at this proportion out to 2027, as set out in the recently published National Development Plan.


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3. Post Brexit Taxation Impacts

This section sets out some of the considerations that may be relevant in respect of indirect

and direct taxation. However, this paper makes no assumptions about the EU-UK future

relationship.

3.1 Indirect Taxation

High level impacts on indirect taxation

ISSUE IMPACTS

Fiscal Implications Price differentials and trade diversion

Lower price levels in the UK as a result of trade, exchange

rate or tax policy measures may cause consumers to

source less expensive product outside of the State. This

may have the effect of consumers exceeding personal

allowances for goods imported, therefore increasing the

risk of smuggling and illicit trade, which may in turn impact

on the Exchequer and consequently impose an increased

requirement for Revenue resources.

Possible return of Duty Free shopping at Ports/Airports

This would significantly impact on indirect tax revenues.

Policing of indicative limits for passengers would be very

difficult for Revenue to manage and may cause delays in

airports and ports. The return of duty free sales would

have resource impacts for Revenue as well as impacting on

wider social policies.

VAT Retail Export Scheme

VAT revenues may be lost as a result of the significant

volume of traffic between the UK and Ireland. This scheme

would also place a large administrative and resource

burden on Revenue.

Fraud

The management of two separate systems would give rise

to heightened potential for fraud through acquisition and

carousel fraud and the use of different online platforms.

Administrative and

cost implications

for business

Post Brexit, additional costs incurred on imports from the

UK may include customs duty (if applicable) as well as

VAT/Excise which would be due for payment at the time

of import.


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With trade in goods being treated as ‘third country’

imports and exports, and the supply of services falling

outside the EU VAT frameworks, the procedure for indirect

tax returns and the point of collection would change. This

would result in a permanent increased administrative

burden and cost for business.

Traders may use a customs agent for deferred payment of

VAT and Excise and for assistance with customs clearance

procedure. Such services come at a cost to business. In

2016, over 1.3 million customs declarations were

submitted to Revenue by 140 agents on behalf of

numerous Irish traders, whereas only 75 individual

businesses submitted declarations on their own behalf.

This suggests that a significant portion of third country

trade is facilitated by agents and this is also likely to be a

feature of trade with the United Kingdom post-Brexit.

Loss of

administrative

cooperation

between Ireland

and the UK

A loss of effective structures for coordinating policy and

operational approaches to tackling fraud as well as for

sharing intelligence and coordinating investigations may

be detrimental to combatting the risk of fraud post Brexit.

Ireland would be unable to conclude an agreement on

administrative cooperation and mutual assistance directly

with the UK as a third country. This must be negotiated by

the EU. It is important that satisfactory administrative

cooperation and mutual assistance arrangements are

provided for in the future relationship between the EU and

the United Kingdom.

Resource

implications for

Revenue

Brexit may have a number of implications for Revenue’s

administration of indirect taxes, including in relation to IT

systems, compliance and customer communications.

3.2 VAT

3.2.1 The rules governing the European Value Added Tax System for goods and services

are contained within the VAT Directive (Council 2006/112/EC). Following the departure of

the United Kingdom, the collection of indirect tax revenues on United Kingdom trade

would change from operating within current EU legislative frameworks to those that are

in place for ‘third countries’. A change to tax administration has the potential to have a

material impact on indirect tax revenues collected as a result of differing economic activity


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or increased opportunities for fraud as a reaction to alternative administrative systems

and/or tax rates.

The volume of trade and the number of Irish traders involved in transactions with the

United Kingdom is highly significant. The profile of traders and their imports of goods and

services from the United Kingdom indicates a significant number of low value transactions

undertaken by a large number of businesses. The number exporting is much lower and the

values are higher.

In 2015, over 90,000 VAT registered Irish traders acquired goods and services from the UK.

60% of these traders had imports from the United Kingdom totalling €10,000 or less during

that year. In the same year, over 10,000 VAT registered traders in Ireland provided goods

and services to the UK. 50% of these traders exported to the United Kingdom amounting

to less than €130,000 in that year.

EU VAT rules apply on the basis of business to business (B2B) or business-to-consumer

(B2C) supplies of goods and services. Special rules apply to supplies between Member

States, which would no longer apply to supplies to and from the UK post Brexit. The

anticipated changes in each area and the associated impact is outlined below.

3.2.2 B2B supplies to and from UK

Under EU rules businesses in Ireland and the United Kingdom may acquire and supply

goods and services cross border VAT free, this is known as ‘intra community supplies’. Such

movements are subject to a number of conditions, one being that the customer must be

registered for VAT in another Member State.

Post-Brexit, B2B supplies from the United Kingdom into Ireland would be considered ‘third

country’ imports, and VAT would therefore be chargeable at the point of import. This

would create significant administrative and cash-flow burdens for Irish business and may

ultimately impact on their competitiveness.

B2B supplies from Ireland to the United Kingdom would be considered exports. Exports to

third countries are zero-rated; however a Single Administrative Document (SAD Customs

Declaration) shall be provided to Revenue and shall contain details of the export. Evidence

may be required that the goods have left the EU, which may also create a new

administrative burden for business.


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3.2.3 B2C supplies to and from UK

Post-Brexit, B2C supplies of goods to the United Kingdom would be treated as exports and

Irish VAT would not be chargeable. B2C supplies of goods from the United Kingdom to

Ireland would be liable to VAT on import where the value exceeds the low value

consignment relief of €22 and this would have to be collected from the private importer

via the delivery company, who would also have to complete the customs formalities on

entry of the goods into Ireland. A Commission proposal was adopted in December which

may lead to the abolition of the low value threshold for imports. This would have obvious

implications for low value trade between Ireland and the United Kingdom.

There may be a loss of VAT receipts for the Exchequer on B2C sales from Ireland to the

United Kingdom as the zero rate of VAT may apply to all goods exported. Currently only

those goods exported by Irish businesses exceeding the United Kingdom current annual

threshold of approximately €90,000 are not liable to Irish VAT. Considering that the United

Kingdom’s threshold is relatively high, it is likely that many Irish businesses have not

exceeded this threshold and are charging Irish VAT. The loss of Irish VAT on these sales is

unlikely to be significant, but further research is required on this traffic.

3.2.4 Supplies of services to and from UK

In respect of the supply of services, the general rule is that B2B intra-community supplies

of services are chargeable to VAT in the business customer’s Member State. Post-Brexit,

supplies of services to United Kingdom business customers by Irish traders would not be

liable to VAT and supplies of services to Irish business customers by UK based traders

would continue to be subject to Irish VAT. Accordingly, VAT revenues should not be

impacted. B2C supplies of services, other than B2C supplies of broadcasting,

telecommunications and electronic services, are generally chargeable to VAT in the

supplier’s Member State, while B2C supplies of services to third countries are generally

not liable to VAT. This may result in some loss of VAT revenues but Revenue do not

consider that they would be of significance.


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3.2.5 Summary of VAT issues and impacts

ISSUE IMPACTS

Guarantees and

Deferred Payment

Traders importing goods from the UK, who do not hold a prior

arrangement with Revenue would have to pay all applicable

duties at the point of importation.

IT systems

UK Mini One Stop

Shop

United Kingdom would no longer have access to EU27 wide IT

systems or data thus requiring Irish business to register for VAT in

the United Kingdom, giving rise to additional administrative

burdens and costs.

Retail Export

Scheme

The Retail Export Scheme allows visitors from outside the EU

benefit from VAT relief on goods purchased in Ireland and

subsequently taken outside of the EU upon departure. Post Brexit,

under existing rules, visitors from the United Kingdom would be

able to avail of this scheme. The likely volume of activity could

result in considerable administrative costs and would be open to

abuse with potentially serious implications for VAT revenues.

Simplifications Agreed EU simplifications such as triangulation, call off stocks, and

consignment stocks, which assist compliance in more complex

supply chains would no longer apply to interaction with the UK.

EU Fiscal Rules Post Brexit, the United Kingdom may have more flexibility in

relation to their tax legislation and may be in a position to

introduce further incentives to attract business and investment to

the United Kingdom than is possible at present as an EU Member

State.

Double Taxation The interaction of EU and UK VAT systems post-Brexit may give

rise to some minor incidences of double taxation, where for

example goods that have borne VAT in one jurisdiction are

exported and are taxed on importation into the other jurisdiction.

VAT Fraud In a post Brexit environment, the Exchequer may be exposed to

new or increased risks in respect of carousel fraud or the risk of

non-established traders using platforms for e-commerce VAT

fraud.


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VAT on Used Car

Registrations

All cars imported from the UK would be liable to VAT at the

standard rate. VRT would be unaffected by Brexit apart from

whatever impact it might have on the price of imported used cars

from the UK. However, the importation process post Brexit may

eliminate the risk of abuse of the margin scheme that exists at

present and the potential for other VAT fraud in this segment of

the motor trade.

3.3 Excise

3.3.1 The rules governing excisable product is contained in the General Excise Directive

(Council Directive 2008/118/EEC).

Excisable goods move between Member States either with the associated excise duties

suspended for the duration of the movement (duty suspended goods) or with excise duty

paid (duty paid goods). For economic reasons, such as cash flow, the majority of intra EU

B2B move under duty suspended, as the duty does not have to be paid until the goods are

released for consumption.

At present, the movement of such products between Member States is controlled using

the Excise Movement and Control System (EMCS), a facility shared by all EU Member

States, which allows the movements to be tracked by relevant tax authorities. Post Brexit,

the United Kingdom would leave EMCS, requiring a change to the control of the movement

of excisable products through the United Kingdom 1.

Post Brexit, EU formal legislative and administrative mechanisms would no longer be

applicable to the United Kingdom. Without access to existing common and simplified

systems, alternative arrangements would be required to help identify and tackle fraud. A

loss of effective structures for coordinating policy and operational approaches as well as

for sharing intelligence and managing investigations would be detrimental to combatting

the risk of fraud. The benefits of such close cooperation are clearly illustrated by the

success of the recent joint effort between Revenue and HMRC in targeting fuel laundering.

1 According to 2015 figures, approximately 86% (48,000 movements) of all duty suspended movements of excisable products into Ireland came via the UK.


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Ireland would be unable to conclude an agreement on administrative cooperation and

mutual assistance directly with the UK as a ‘third country’, as this may only be negotiated

by the EU. A satisfactory administrative cooperation and mutual assistance arrangements

in the future relationship between the EU and the UK would be beneficial in this regard.

3.3.2 Personal Consumption Limits

The free movement of goods is a fundamental freedom of the Single Market. Consumers

are free to bring goods into the State without having to pay Irish VAT and Excise, provided

the goods are duty (VAT and Excise) paid in the Member State where the person acquired

them, and that the person acquiring the goods is personally transporting them for their

own use and not for a commercial purpose. There are no upper limits to the amount of

goods that can be brought into the State but indicative limits for excisable products are

specified in legislation and are used as a guide when determining if the goods are being

brought in for commercial purposes. These indicative limits are outlined in the table below.

When the United Kingdom leaves the EU, the free movement of these products would no

longer apply, as they would be entering the EU from ‘third country’. This would represent

a significant change for consumers and it would be necessary to raise awareness and

consider how it may be controlled and enforced in order to protect indirect tax revenues.

3.3.3 Duty Free Allowances

General Allowances

As a result of the United Kingdom’s status as a ‘third country’ consumers may be permitted

to bring goods from the United Kingdom to Ireland free of duty, provided their combined

value does not exceed €430 in the case of an individual aged 15 years or over or €215 in

the case of an individual aged less than 15 years old. Customs duty and VAT may be

charged on the full value of the goods where these limits are exceeded.

Excisable allowances

In addition, there are limits for excisable goods which, post Brexit, would be applicable to

goods arriving from the United Kingdom, see table below. Excise is charged on the excess

of these limits, once declared.


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Indicative Personal Consumption Limits within the EU and Duty Free Allowances for

Persons Entering Ireland from a Third Country2

Excisable

Products

Product Indicative Personal

consumption limits

within EU

Duty Free 3rd

country

limits

Tobacco

Products

Cigarettes 800 200

Cigarillos 400 100

Cigars 200 50

Loose tobacco 1kg 250g

Alcohol

Products

Spirits 10 litres 1 Litre

Intermediate products

(e.g. Port, sherry) and

Sparkling wine

20 litres 2 Litres

Wine 90 litres 4 Litres

Beer 110 litres 16 Litres

Considering Ireland applies significantly high rates of excise duty there is an obvious

likelihood that Irish consumers may avail of any new opportunities to buy duty free goods

when returning from visits to the United Kingdom and visitors from the United Kingdom

may act in a similar manner. It is worth noting that under Article 14 of Directive

2008/118/EC duty free shops may only be situated at a port or airport. Nevertheless

should duty free be available to travellers arriving from the United Kingdom it would

impact indirect tax revenues very significantly.

Traveller compliance with personal limits ideally ought to be controlled by duty free outlets

curtailing sales to the set limits, however, as this is currently not the case, customs checks

at points of entry may be applied if there is a suspicion that excessive amounts of these

goods are being imported or that personal limits on the overall value of goods that may be

imported without duty are being exceeded. This would evidently have consequential

resource implications for Revenue.

Any increases in duty free shopping would not only have fiscal consequences; the

increased availability of duty free tobacco and alcohol to Irish consumers would weaken

the effectiveness of fiscal policy as a tool in the area of Health and Welfare.

2 See EU Directive 2007/74/EC. Apportionment of allowances for all Tobacco products and for Spirits and Intermediate products are allowed on a fractional basis (e.g. 100 cigarettes and 50 cigarillos or ½ litre of spirits and 1 litre of Port).


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3.4 Direct Taxation

3.4.1 Direct taxation is largely a national competence and Direct tax issues are primarily

managed through the existing Double Taxation Agreement (DTA) between the UK and

Ireland. The existing DTA shall remain in place post Brexit. Following the UK departure,

they shall no longer be bound by the EU Tax Directives and other instruments. Such EU

Treaties afford Ireland significant protection in terms of discriminatory tax treatment.

Considering the UK would no longer be subject to such Treaties, Ireland can however rely

on the Double Taxation Agreement in terms of challenging discriminatory tax treatment

by UK.

Primary impacts

Legislative inconsistencies

Tax Competition between Ireland and UK

Stamp Duty - Central Securities Depositary

Legislative Inconsistencies

The primary issue would relate to the UK ‘falling out’ of collective legislative references or

definitions relating to EU or EEA Member States. This may result in national legislation

needing to be amended considering the significant use of such terms currently included in

Irish tax legislation3. It is noted that this issue arises across all Direct tax heads and

associated legislation4.

Tax Competition between Ireland and UK

Other issues relate to tax competitiveness where the UK would no longer be directly

subject to EU Codes of Conduct on business tax criteria which are designed to assess

harmful tax competition. However, the UK would still be a member of the OECD and

subject to the OECD Harmful Tax Practice criteria which overlap to a large extent with the

EU Code criteria. In addition, one of the objectives of the EU’s new external strategy is to

apply the Code of Conduct criteria to third countries when assessing whether or not they

should be on EU blacklist of non-cooperative third countries.

3 E.g. Taxes Consolidation Act 1997, Stamp Duties Consolidation Act 1999, and the Capital Acquisitions Tax Consolidation Act 2003. 4 E.g. Income tax, Corporation tax, Stamp duty, Group loss relief, Capital Gains Tax, Companies Gains Tax Group relief, and Capital Acquisitions Tax.


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The UK may no longer be bound by EU State aid rules and therefore may have a greater

flexibility in the design of tax incentives to attract certain types of Foreign Direct

Investment. As above, the State aid rules overlap to a limited extent with the OECD

Harmful Tax Practice criteria, but it is possible that Brexit presents a clear and marketable

competitive advantage for the UK in not being subject to State Aid rules.

3.4.2 Stamp Duty

Central Securities Depositories (CSDs) are specialist institutions which settle securities such

as equities or debt instruments. CSDs are authorised under the framework set out in the

EU Central Securities Depositories Regulation (CSDR). The CSDR also sets out a third

country regime based on equivalence assessments by the European Commission.

Settlement is the final part of the trading process and integral to any trade. Ireland is the

only Member State of the EU that does not currently have its own CSD. We currently use

Euroclear CSD London to settle securities traded on the Irish Stock Exchange.

For this reason, Brexit presents a risk in the context of the Stamp Duty on Shares. The

Department is considering options and mitigation measures in this regard.


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4. Post Brexit Customs Impacts

4.1 Customs policy and procedure is a sole competence of the European Union.

Following Brexit, the UK would be considered a ‘third country’ for customs purposes. The

legislative basis for the EU’s interaction with ‘third countries’ in a customs context is set

out in the Union Customs Code (UCC). The UCC and associated Delegating and

Implementing Acts provide the specific detail on what is required for goods being imported

and exported from and to third countries. It also outlines procedures for goods transiting

across ‘third countries’ from one EU Member State to another or to the rest of the world.

4.2 Customs controls on UK traffic

Customs controls involve administrative and risk-based physical checks. It would impose

requirements for documentation, including customs declarations upon entry and exit to

and from the European Union territory/ Rest of World and in addition necessitate the

requirement for safety and security documentation for all goods, in particular agri-food

products (the less processed the good the higher the safety risk).

Revenue estimate that the volume of declarations would increase from 2 million to 20

million per annum. The majority would be accounted for by small items (online purchases),

couriered by express carriers such as DHL. Each package would require a customs

declaration to be submitted to Revenue, technically known as a Single Administrative

Document (SAD). Revenue estimate that safety and security declarations could increase

from current figures of 59,000 to 2.8 million per annum as a result of the UK no longer

being compelled by EU safety and security acquis.

As a result of increased administrative requirements and customs controls, significant

delays on borders5 could be expected.

5 The Financial Times (Oct 2017) reported that an average of two minutes additional customs processing would lead to a 17 mile traffic queue at Dover. Significant additional infrastructure would be required in order to reduce congestion, and new technology would be necessary at the port to speed up the processing of customs declarations.


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4.3 Customs Transit Procedures (movements of goods from Ireland to the Single

Market via United Kingdom land bridge)

Brexit creates a unique difficulty for Ireland as a result of its geographical location, as

Ireland routinely utilises the United Kingdom as a ‘land bridge’ to access the Single Market.

Travel time to France from Ireland is almost doubled when excluding the UK as a route of

travel, which is not a viable option for time sensitive goods. The UK’s status as a ‘third

country’ therefore requires transport operators wishing to travel through the UK as a route

to mainland Europe to operate under a customs procedure called ‘transit’.

The UCC sets out the rules governing the movement of goods across the Single Market via

third countries. There are three types of transit procedure:

Union Transit - movement of goods within the Customs Union (Membership EU

MS’s)

Common Transit (Common Transit Convention CTC) - Allows for the movement of

goods between the Union, the Common Transit Countries (i.e. Iceland, Norway,

Switzerland. Liechtenstein, Turkey, former Yugoslav Republic of Macedonia, Serbia)

and between the Common Transit Countries themselves.

TIR (Transport Internationaux Routiers) - Allows for the movement of goods

internationally over one or more frontiers and where some proportion of the journey

between start and end of the TIR is by road.

The movement of goods, post Brexit would require management under the rules of the

UCC Custom Transit procedures. Transit would require the submission of multiple

declarations, financial guarantees and the imposition of physical and administrative

customs controls on goods. Such declarations may be made through the New

Computerised Transit System (NCTS). Currently there are some 36,000 transit movements

(165,000 consignments) managed by Revenue on an annual basis. Following Brexit, this

may be expected to increase to 4 million (20 million consignments), which would require

both customs and safety/security declarations.

Issues arising from Ireland’s unique geographic situation, including transit of goods (to and

from Ireland via the United Kingdom) is recognised in the joint UK-EU Progress Report,

December 2017.


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On 24 May 2018 the UK has applied to accede to membership of the Common Transit

Convention, this may assist the customs transit issues but not resolve same.

4.4 Revenue Resources

Customs currently serve as custodians of the Island’s frontiers, protecting the State at the

first point of entry of goods. In this capacity, Revenue are the competent authority for

identifying goods entering the EU that require non-fiscal controls including agricultural

goods, medicinal products, dual use items and prohibited and restricted goods. The

volume of this work would significantly increase as a result of Brexit.

As a result of the level of trade with the United Kingdom, the volume of air freight and

container traffic subject to customs controls may also considerably increase, which would

create significant resource issues for Revenue in terms of infrastructure and staffing.

4.5 Impact on business

Customs formalities on trade with ‘third countries’ are currently managed through

‘Authorised Economic Operators’ (AEO). Such operators are Revenue approved and have

access to Revenue IT systems. In return for their authorisation, the operators have in place

a customs guarantee to pay duty and VAT on a monthly basis rather than at the point of

import. Currently Ireland has 1446 AEOs, who account for 89% of third country imports.

Revenue have identified 38,000 traders who have regular dealings with the UK and a

further 100,000 who have less frequent trade. It is the larger group, with infrequent trade,

who are at risk to significant changes in processes as they are less likely to have AEO status.

The customs administrative burden may be most noticeable to small operators and single

shipments (of low value goods), where the services of customs agents must be used to

process through customs procedures, and discharge any duty owed. Revenue have

indicated that they do not intend to extend the use of their customs IT systems to all

traders, restricting that access only to authorised traders. This may necessitate smaller

traders to use an AEO as a customs agent, which may have a significant cost burden on

business.

6 Figure - May 2018


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4.6 Loss of administrative cooperation between IE-UK

The United Kingdom’s departure would in theory discontinue customs cooperation and a

loss of mutual assistance between the EU and UK, which is key to trade facilitation. The UK

would be outside the normal EU information exchange and mutual assistance

programmes.

4.7 Legal Uncertainty

The departure of the United Kingdom from EU legislative frameworks may cause legal

uncertainty and regulatory gaps which may be further hampered with the absence of legal

oversight from ECJ or clear dispute resolution mechanisms, especially for goods in the

midst of a customs procedure on the date of departure.

5. Conclusion

While there still remains a lack of clarity on the UK post-exit relationship with the EU, the

central scenario assumes that a transition period applies until end-2020 once the UK

formally leaves the European Union next March. This paper outlines issues that can be

foreseen post 2020 in terms of East-West trade, a ‘cliff-edge’ exit, involving a sudden exit

without a trading agreement in place, also cannot be excluded.

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