ReFIT Forum Brexit Special. 12 th July 2016

Transcription

1 ReFIT Forum Brexit Special 12 th July 2016

2 Welcome Simon Baxter Indirect Tax Retail Sector Leader 12 th July 2016

3 Brexit - Keep Calm and Carry On AGENDA Brexit - What next? What are the macro implications? What are the indirect tax implications? What can you do now?

4 Agenda Welcome and introduction Simon Baxter Brexit an EU perspective Retail sector reaction and outlook The post referendum landscape Customs Duty & trade models Coffee Gijsbert Bulk Julie Carlyle Simon Baxter Arjen Odems VAT scenarios post-brexit Simon Baxter & Ethan Ding Systems/ERP issues Chris Lewis Direct tax outlook UK vs EU law initial reaction Vouchers Directive Ruth Donaldson Hana Ross Saleena Beedassy 13:00 Open Forum/Close/Buffet Lunch

5 Brexit - an EU perspective Gijsbert Bulk EY Global Indirect Tax Leader 12 th July 2016

6 Retail sector reaction and outlook Julie Carlyle EY Retail Sector Leader 12 th July 2016

7 Post-EU referendum managing the indirect tax landscape Simon Baxter 12 th July 2016

8 The EY Indirect Tax Brexit Referendum A quick straw poll: 1.Will your business be affected by Brexit? 2.Did you plan in advance for a Leave scenario? 3.Do you feel comfortable that you understand the implications for your business? 4.Is your business considering any significant changes as a result of the Leave decision?

9 Brexit political reaction UK UK PM David Cameron resigns, new Conservative leader to be in place by October Lord Hill resigns as UK s European Commissioner Labour leadership election Scotland second referendum on Scottish independence? Re-unified Ireland discussion? EU EU Council June 2016 EU Parliament held a special session on 28 June 2016 Overseas President Obama The special relationship between the United States and the United Kingdom is enduring The United Kingdom and the European Union will remain indispensable partners of the Untied States even as they begin negotiating their ongoing relationship China People Daily Cooperation won t change because of Brexit Malaysian Prime Minister Najib Razak We should increase [trade between Britain and Malaysia] and there maybe an opportunity to do so now if the UK reaches out to strategically important nations beyond the EU.

10 Brexit How could the UK exit? Potentially different routes Negotiated withdrawal under Article 50 of the Treaty of Lisbon Unilateral withdrawal Nothing Constitutional questions Devolved assemblies: veto vs. consent EU view Junker: [delay] doesn't make sense Merkel: shouldn't take forever but would not fight over a short period of time Article Any MS may decide to withdraw from the Union 2. A MS which decides to withdraw shall notify the European Council of its intention. the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament. 3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the MS concerned, unanimously decides to extend this period. 4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing MS shall not participate in the discussions of the European Council or Council or in decisions concerning it. 5. If a State which has withdrawn from the Union asks to re-join, its request shall be subject to the procedure referred to in Article 49.

11 Article 50 Potential timeline Once notice given, negotiations start and clock is running when to give notice? Treaty provides for two years could be shorter if agreed or longer if extended by unanimity June 2016 October 2016 April/May 2017 July December 2017 August- October 2017 Referendum New UK Prime Minister French Presidential Election UK has EU Presidency German Federal Election Notice 31 December 2016? UK leaves EU 1 January 2019?

12 Key areas for tax professionals Immediate actions: Dealing with volatility Treasury Transfer pricing Reassure people Short to medium term: Key functional areas Trade People Treasury and finance Headquarters Systems changes Ongoing tax changes Future reform

13 Customs Duty and trade models Arjen Odems Customs & International Trade 12 th July 2016

14 UK s trade position today EU FTA in place EU FTA in negotiation time consuming process No EU FTA Single Market A single legislative basis applies within the EU (the Union Customs Code and implementing provisions). The EU is the member of the WTO and enters into FTAs on behalf of Member States.

15 Potential trade models EU Special Status Norway model European Economic Area (EEA) Switzerland model Bi-lateral trade agreements Turkey model Customs Union with the EU Canada model Free Trade Agreement with the EU Singapore/Hong Kong model Unilateral Free Trade approach World Trade Organisation Free trade under WTO rules

16 Current Business Model Taking the initiative Indirect Tax and Trade Impact Assessment Re-model under potential future trade scenarios EU Special Status (Norway +) Unilateral Free Trade (Singapore) Identify key impact areas: Customers EEA (Norway) FTA (Canada) Suppliers Systems Processes Bi-lateral Agreements (Turkey Switzerland) WTO Lobbying Cash Model Change Review dependence on EU law and assess impact of Brexit on existing rulings, tax positions, and controversies

17 Trade scenarios post Brexit Example Tariff free? Customs union Access to EU FTA s Removal of nontariff barriers Financial contribution Vote on EU rules Free movement EU special status European economic area (EEA) Bilateral agreement 1 Bilateral agreement 2 Yes Full Yes Yes Yes Yes Yes Norway Mostly No No Some Some No Access to single market Customs compliance Switzerland Mostly No No Some Some No Bespoke access to single market Customs compliance Turkey Manufacture Processed agriculture Some No No No No No FTA Canada Some No No No No No No World Trade Organisation (WTO) USA, China, Japan WTO tariffs Unilateral options No No No No No No

18 Customs and trade considerations post Brexit Trade with EU Members may be restricted Trade barriers (Tariff and non-tariff) require negotiation Customs compliance burden may increase Rulings and EU wide authorisations under EU legislation will lose it s validity outside UK Trade with non-eu countries: uncertain Trade barriers (Tariff and non-tariff) require negotiation FTA benefit is limited to UK content (instead of EU wide content) HMRC has discretion to facilitate trade and customs Simplified export procedure (e.g. Oil & Gas exports) Reduction of compliance cost FTA negotiations are not restricted by all EU Member States

19 VAT Scenarios post-brexit Simon Baxter & Ethan Ding 12 th July 2016

20 VAT scenarios post Brexit Example EU Directives/ Case Law Cross Border VAT Rulings Freedom to set VAT rates/law Free movement of goods Import VAT EU Statistical reporting Triangulation VAT refunds EU Special Status Yes Yes No Yes No Yes Yes VAT refund directive EEA Norway Persuasiv e Persuasiv e No Part No (for agreed products ) Part No 13 th D Bi-lateral agreement/ Customs Union/ WTO CH Turkey Singapore Canada No No Yes No Yes No No 13 th D

21 VAT considerations post Brexit Trade with EU becomes more complex for reporting: UK VAT numbers no longer in the VIES system - changing the rules for demonstrating that the UK party qualifies as a VAT taxable person Proof of export to obtain 0% UK and EU VAT reclaimed through a new system as the VAT Refund Directive will no longer apply Distance selling requirements Place of supply of services MOSS and general changes (registration and compliance) HMRC discretion on rulings and law CJEU case law may no longer apply to UK VAT issues Cross-border rulings may cease to be valid as far as the UK part is concerned Freedom to set liabilities and rates Cross-border supply chains need to be reviewed, including arrangements for maintenance & repairs, spare parts etc.

22 Indirect tax issues for retailers Distance sales (DS) EU VAT law provides specific rules for e-commerce and online sales of delivered goods to EU private customers. Current trade below DS threshold account for UK VAT. Current trade above DS threshold no UK VAT, but account for VAT according to the destination country. Future no UK VAT on export, but need to consider import VAT and customs duty implications in the destination country? Potential impact on pricing and customer experience? Possibility of negotiating special VAT status for UK distance sales entities within the EU? Supply chains/business models Some retailers have warehousing facilities in the UK and other EU countries. Movement of own goods from the UK to another EU country (e.g. to replenish stocks) Current treated as fictitious intra-community sales no UK VAT, but account for acquisition VAT in the destination country. Future no UK VAT, but need to consider import VAT and customs duty implications in the destination country? Potential impact on pricing? Similar considerations for movement of own goods from another EU country to the UK.

23 Indirect tax issues for retailers (cont d) Supply chains/business models (cont d) Sale of goods to a private customer located in another EU country, but goods are shipped by a UK warehouse e.g. where a local warehouse in the customer s country does not have the particular size/colour of the clothes ordered by the customer. Similar considerations as for DS? How would returned goods be dealt with? Customers may need to complete certain form(s) to get a refund of customs duty and/or import VAT potential impact on customer experience? Triangulation EU VAT law provides a simplification for the intermediary in a triangular arrangement to avoid VAT registration in the destination country, subject to certain conditions being met. Current Party B does not need to VAT register in Country C under the simplification. Future simplification does not apply? invoice A (NL) B (UK) goods Party B as the importer of record potential VAT registration and compliance obligations in Country C? Potential cash flow and pricing impact? Party C as the importer of record Party C pays import VAT and customs duty, and then recovers import VAT later? Potential cash flow and pricing impact? invoice C (FR)

24 EU Precedent and Lobbying Liability/Rates Procedural FS exemptions (Andersen) Pensions (PPG, ATP, HMRC transitional period) Ebooks zero rating? Domestic energy 5% rate reduced Energy saving materials reduced rate Land related services (EC notes due Jan 2017) Booking fees (Bookit/NEC) Single/composite supplies (CPP) Holding Companies EU branches (Skandia) Import VAT on VAT return or C79 MOSS/register non-established service suppliers TOMS - wholesale supplies/ transport company Establishment/intermediaries Triangulation/transport services Elida Gibbs (cashbacks/discounts) Interest on refunds

25 EY Indirect Tax Approach Simon Baxter 12 th July 2016

26 Planning for indirect tax uncertainty Phase 1 Impact Assessment Phase 2 Phase 3 Phase 4 Monitoring & Advocacy Change management Implement Modelling Tax issues/treatment Business issues Cash Industry insight Business engagement HMRC/Treasury Industry bodies Reassess impact Compliance Systems Processes Customers Suppliers Model change Testing Go Live Monitor Budget

27 EY Brexit Impact Modelling

28 Impact Assessment Outcome

29 Systems/ERP issues Chris Lewis 12 th July 2016

30 Brexit systems considerations Potential areas of impact on systems Required changes to automated VAT determination logic in systems - (e.g. SAP condition tables, Oracle EBT). Tax codes intra-eu codes no longer relevant? UK VAT numbers not in VIES changes to systems vendor and customer set-up processes. Changes to UK VAT return boxes impact on compliance technologies and potentially tax codes required. Invoice changes e.g. legal text for formerly intra-eu supplies from UK Intrastat & ESL reporting obligations will go - any customised / in-house developed reports could be end-of-life d. New international trade statistical requirements depending on trade model?. Data analytics / exception reporting criteria would need updating i.e. tests looking at intra-eu activities and distance sells. Data / document storage some markets may not allow data to be stored in the UK as a non-eu market. 29

31 Brexit systems considerations VAT determination Brexit will mean required systems tax code and determination logic changes to deal with new scenarios: Formerly intra-eu supplies/purchases treated per new rules e.g. intra-eu becomes export/import? Movement of own goods e.g. SAP Plants Abroad not required? Triangulation can no longer apply. Distance selling change in logic from taxable where customer located to a UK export, unless UK agrees similar arrangement with EU. New trade agreements with non-eu territories may require changes to tax coding and logic i.e. no longer regular imports/exports? 30 Impact systems Major ERPs May or may not release a patch (Oracle initially stated there wouldn t be). Majority may be manageable through configuration. Tax engines & other VAT software vendors Expect vendors to update rule & rate technical content as required.

32 Direct Tax issues Ruth Donaldson International Tax Partner 12 th July 2016

33 Direct tax short term Retailers are on the front-line in terms of consumer confidence, adverse changes to personal tax positions and the impact on spending Reduced profitability or increased losses could coincide with major UK direct tax reforms to the use of losses and restrictions on interest deductions from 1 April 2017 Loss relief restricted to 50% of current year profits Interest deductions limited to 30% of EBITDA Impact on both cash tax and deferred tax assets potentially Unconfirmed speculation that (some) of these reforms could be postponed Confirmed cut in corporation tax rate to 17% may alleviate some of the adverse impacts, along with the announced intention of further cuts to below 15% Currency volatility is already impacting some retailers costs, and reported results where GBP is a large proportion of their earnings Whilst this is primarily a commercial issue, remedial action will always have UK direct tax consequences that require analysis Treasury and financing interest rate uncertainty and impact on financial (or ATCA) covenants weakening EBITDA

34 Direct tax medium and longer term EU tax directives may no longer be applicable to flows to/ from the UK Dividends, interest and royalties to be considered in particular UK has the largest double tax treaty network in the world however Should commercial and/ or indirect tax considerations trigger supply chain restructuring, this will also trigger direct tax consequences, for example: New or additional permanent establishment (PEs) issues eg BEPS Action 7 definition of a PE in a warehouse context Transfer pricing considerations and impact on currently agreed positions such as Advanced pricing Agreements Consequential impact on mix of profits and tax rates applying across multiple territories Outside of the EU, concerns regarding the provision of illegal State Aid and the ATAD should be less relevant. In a retail context, this may provide more flexibility to: Consider changes to the capital allowances regime to stimulate investment eg in the context of store expansion Announced aim to cut the corporation tax rate to below 15%

35 UK vs EU Law Initial thoughts Hana Ross EY Law 12 th July 2016

36 How will UK law change after Brexit? Recap of how EU law works: Regulation = binding law on EU member state. No need for implementing local law e.g. General Data Protection Regulation Directive = sets out goals for EU member states to achieve. Member states devise their own laws e.g. Working Time Regulations (1998) in the UK implement European Working Tome Directive Decision= only binding on company or state addressed to e.g. Microsoft 2009 competition decision

37 A glimpse into the future Trade ties: EU vs the rest of the world? Much depends upon the form of Brexit: EEA ( Norway option) EFTA (Swiss option) Customs union (Turkish option) WTO option Lots of bilateral trade agreements

38 No, not EU! areas of law that have nothing to do with the EU Commercial contract law not affected by EU law Patents European Patent Convention nothing to do with the EU Human rights European Convention on Human Rights not an EU Treaty

39 EU do something to me Areas of greater impact Employment law TUPE Working time regulations Maternity and paternity leave Data Protection GDPR in force from 25 May 2018 UK Privacy Shield? White List? GCHQ surveillance activities

40 EU do something to me Areas of greater impact Competition Law End of one stop shop for mergers End of state aid rules UK lawyers lose privilege rights in competition investigations! Intellectual Property Trade marks Patents Interpretation of contracts

41 Factors that affect repeal/change Sheer volume of legislation What the British electorate will stomach Business vote TUPE Working Time Directive Damages claims in discrimination cases Precedents take time to overturn

42 New EU vouchers directive Saleena Beedassy 12 th July 2016

43 EU Vouchers Directive Title IV, ch.5 of the Principle VAT Directive (2006/112/EC) Background Following a proposal issued in May 2012 by the European Commission The Council of the European Union has published, on 27 June 2016, new legislation to amend the Principle VAT Directive (2006/112/EC) in relation to the VAT treatment of vouchers Until now, the national tax rules in EU member states have been inconsistent Purpose Harmonisation of the VAT treatment of vouchers across all EU Member States to ensure certain and uniform treatment Avoidance of inconsistencies which may distort competition, or result in double or nontaxation Scope The new EU legislation will apply to single purpose vouchers ( SPV ) and multi purpose vouchers ( MPV ) Effective from 1 January 2019

44 EU Vouchers Directive Definitions Increased clarity provided through definitions where none were given before in EU VAT legislation Voucher SPV MPV An instrument where there is an obligation for a supplier to accept it as consideration / part consideration for a supply of goods or services Where the goods or services to be supplied or the identity of the supplier is indicated on the instrument itself or related documentation, e.g. terms and conditions. At the time of issue of the voucher, the following is known: the place of supply of the goods or services to which the voucher relates; and the VAT due on those goods or services. Any voucher other than an SPV

45 EU Vouchers Directive VAT treatment SPV The place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services are known, at the time of issue of the voucher. Account for VAT at the point of SALE of the SPV (Article 30b(1)) MPV An MPV is defined as a voucher other than an SPV. Account for VAT to the point of REDEMPTION of the MPV (Article30b(2) and 73a) The MPV will continue to give a preferable position compared with an SPV in terms of: Cash flow Breakage where an MPV is never redeemed, no VAT will become due

46 EU Vouchers Directive Intermediaries or distributors SPV VAT applies at each transfer if using a buy/sell distributor The distributor is considered to be making a supply of the voucher for VAT purposes The consideration paid at each transfer is VAT inclusive Importantly, the distributor can deduct any VAT charged to it in line with the normal rules. MPV VAT does not apply at each transfer, prior to this point A buy/sell distributor will not be considered to be making a supply of the voucher for VAT purposes A distributor acting as an agent, makes a supply of distribution or promotion services liable to VAT.

47 EU Vouchers Directive A UK perspective (VAT Act 1994) The UK s treatment of vouchers Sch. 10a of VATA 1994, provides the UK s definition of a a token, stamp or voucher and further categorises vouchers into two main types voucher (whether in physical of electronic credit, and retailer vouchers. form) that represents a right to receive goods or services to the value Issue of MPV (Schedule 10A paragraph 4) of an amount stated on The consideration for the voucher is disregarded at the time of issue it or recorded in it. VAT is brought to account on redemption of the voucher Mirrors the new EU legislation Sale of SPV (Schedule 10A paragraph 6) VAT is due at the time of supply UK definition a face-value voucher that represents a right to receive goods or services of one type which are subject to a single rate of VAT.

48 EU Vouchers Directive So what? Some considerations Time to reconsider how the voucher is classified Can it be considered to be an MPV or will it now fall into the new broader EU definition of an SPV? Claiming breakage on an MPV where none as been claimed before Retailers issuing vouchers which can be used in more than one member state Simplifies the VAT treatment of cross-border vouchers Possible end to double taxation Buy/sell distributors in the supply chain Supply is outside the scope of VAT for MPVs schedule 10a invoices? Employers/business in the supply chain Vouchers provided free to employees or customers Brexit Compliance in respect of EU branches and subsidiaries

49 Questions?

50 Open Forum

51 Thank you Next ReFIT Tuesday 11 th October

52 EY Assurance Tax Transactions Advisory Ernst & Young LLP Ernst & Young LLP. Published in the UK. All Rights Reserved. The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF. ey.com