Brexit Brief what should we do now

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1 Brexit Brief what should we do now Indirect Tax Forum April 2018

2 What is Brexit? Most fundamental change to UK trade with the EU and rest of the world in decades, with a new customs border created between the UK and EU. Exact Brexit model should be negotiated over 2 years following triggering of Art 50. Wasn t possible now we have a Transition Period until December 2020 / April Impact felt by traders now, so many are preparing for Brexit already. With the potential for indirect tax changes to take effect from as early as April Political Environment is constantly evolving which creates uncertainty for all EU traders. Could a redline issue breakdown mean we Brexit before December 2020 / April 2021?

3 Deal or no deal? TIMELINE DEAL STATUS 2017 Q4 Article 50 negotiating period 2018 Q1 Q4 EU membership terms 2019 Q1 Transition - Extra time 2020 Q4 Q1 Outside the EU But market access ongoing for business purpose four freedoms apply, ECJ applies; no UK votes rule taker, not maker Q Q1 Full Deal No Deal (starting with an implementation /period?) WTO trading terms Canada No Deal WTO trading terms UK outside of the Customs Union, outside of the Single Market and outside of Freedom of Movement rules Slide 3

4 Type of businesses and industries impacted by Brexit UK businesses that frequently purchase raw materials or finished goods from other EU Member States import goods from non-eu countries with EU FTA s or that are subject to tariff suspensions Everyone trading in any type of goods between UK and the EU sell raw materials or finished goods to EU customers sell raw materials or finished goods to non-eu countries we have FTA s with Anyone importing into or exporting from the UK to Free Trade Agreement countries Overseas businesses that frequently EU businesses that purchase raw materials or finished goods from the UK EU businesses that sell raw materials or finished goods to UK customers Non-EU businesses that purchase raw materials and finished goods from UK suppliers under FTA agreements Non-EU businesses that sell raw materials and finished goods to UK purchasers under FTA agreements Typical Industries most affected by Brexit (due to higher duty rates) Automotive (manufacturers and parts suppliers) Fashion (accessories, clothing and shoes) Food (foodstuffs, finished foods and beverages) Electrical / Machinery (household electricals / industrial machinery, not computers) Remember any business moving high volumes of goods can have a huge Brexit cost! 4

5 Possible landing zones Analysis of the negotiating red lines from the UK and EU allows for the possible landing zones for the future deal with the EU to be mapped in sufficient detail to allow meaningful plans, with defined triggers, to be built now. Canada plus plus plus Canada base model No deal EU exit with ambitious bespoke FTA and supporting agreements in place EU exit with FTA and supporting agreements in place, based on best previous agreed provisions EU exit with no FTA in place. Free Trade Agreement ( Canada Plus Plus Plus ): A comprehensive FTA, building on EU best in-class FTAs, with extensive alignment and high degrees of flexibility Free Trade Agreement (CETA): A comprehensive FTA, modelled on EU best inclass FTAs (e.g. CETA), with some enhanced alignment on regulations and customs WTO agreement: A comprehensive agreement is not reached and the UK moves to a default WTO trading relationship Regulation Agreed harmonisation of regulatory outcomes (goods and services) and mutual recognition. Enhanced bilateral dispute mechanisms / court. Ongoing UK membership of key EU agencies. Agreement to cooperate on alignment of regulation, including limited equivalence and mutual recognition, with bilateral dispute mechanism with recourse to WTO. No agreed regulatory cooperation. Potential for future divergence. Loss of market access in some areas, particular heavily regulated sectors. Commercial & trade Tariff free access for all goods meeting Origin Rules. Customs procedures are streamlined. Extensive negotiated access for services based on extensive regulatory alignment and/or mutual recognition. Tariff free access for manufactured and most agricultural goods. Customs procedures introduced for EU goods trade with agreed streamlining. Agreement on which service sectors will remain open and exemptions. UK trades goods with the EU / EU-FTA countries on WTO. No preferential clearance programmes are in place, creating delays and costs People Quasi-free movement of workers with priority skills with generous agreed quotas and/or triggers for controlled movement. Labour mobility is streamlined, with facilitated visa regimes limited to certain professions or visa categories. No facilitation of free movement between UK-EU. More restrictive visa regime introduced. Innovation Continued paid access to Horizon UK continues to collaborate with EU on innovation, data sharing and IP Continued paid access to Horizon UK continues to collaborate with EU on innovation, data sharing and IP Loss of access to all EU funding. UK diverges from the EU restricting data sharing, innovation and IP

6 Planning for the impact of Brexit Impact mostly focused in 3 key areas Trade & 1 People & 3 customs immigration 2 Strategy & business plan What does trade between the UK and the rest of the world look like following Brexit and what impact will this have on cost, admin and time? What impact will changes to immigration in the light of Brexit have on the workforce, operating models and how can the industry and individual businesses prepare? How will Brexit affect the UK economy, the value of the GBP, and demand for an industry or business products?

7 Deal or no deal? TIMELINE DEAL STATUS 2017 Q4 Article 50 negotiating period 2018 Q1 Q4 EU membership terms 2019 Q1 Transition - Extra time 2020 Q4 Q1 Outside the EU But market access ongoing for business purpose four freedoms apply, ECJ applies; no UK votes rule taker, not maker Q Q1 Full Deal No Deal (starting with an implementation /period?) WTO trading terms Canada No Deal WTO trading terms UK outside of the Customs Union, outside of the Single Market and outside of Freedom of Movement rules Slide 7

8 Key Risk Areas

Trade and customs impacts Specific impacts will vary by sector and company There are 16 factors within three overall categories that will be negotiated, and that therefore will

9 Trade and customs impacts Specific impacts will vary by sector and company There are 16 factors within three overall categories that will be negotiated, and that therefore will provide uncertainty to trading businesses. Not all of these will be relevant to all businesses but this represents the checklist as to what might move for or against a sector or company.

10 Turning planning into action What to do now Our scenarios analysis indicates that there are several areas where impacts will be felt in all scenarios, meaning there are some no regret decisions that can be made now, that will build readiness for whatever may happen. 1 Appoint a person or team to get 2 Undertake a Brexit Impact your business ready for Brexit. Do Assessment Trade & Customs, they have sufficient C-Suite People & Immigration and backing? Strategy & Business. 3 Create a Brexit Step Plan, pull together stakeholders for change, understand each action and timeline them over next two years. 4 Don t simply plan for Brexit but for your trading years beyond it! 10

11 Turning planning into action No Regret Actions Our scenarios analysis indicates that there are several areas where impacts will be felt in all scenarios, meaning there are some no regret decisions that can be made now, that will build readiness for whatever may happen. Anticipated impact New customs declarations for EU trade Customs declaration complexity and border delays No regret Actions to consider now Review and upgrade your IT systems and data processes to record EU trade accurately Review and upgrade your product data to ensure imports and exports are appropriately classified for customs purposes Apply for customs facilitations, to ease administration at the border, reduce clearance times or negate the double payment of customs duty and import VAT e.g. AEO, CFSP, Customs Warehousing Mapping your Supply Chains will they meet the rules of origin thresholds for UK content Contractual / commercial exposure from supply chain Reduced access to EU labour and workforce Map your supply chains to understand the impact of this new international border on admin costs and indirect tax costs Identify the levels of EU, non-eu and domestic content in main product to ascertain whether customs duty cost can be negated Updating contractual terms with key customers and suppliers - in particular freight and logistics - clarifying distribution of risks and Brexit related costs Identification of EU nationals in workforce and support with registration for Settled Status or other residency rights 11

12 Specific example of a 2 year Brexit plan

Contact information Matthew Paul Clark Head of - Customs, Excise & International Trade Team Office location: UK Embankment Place, London Mobile +44 (0) 7718 339 388 Email: matthew.p.clark@pwc.compwc.

13 Contact information Matthew Paul Clark Head of - Customs, Excise & International Trade Team Office location: UK Embankment Place, London Mobile +44 (0) matthew.p.clark@pwc.compwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it LLP. All rights reserved. In this document, refers to LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Taxing times Indirect tax forum

Taxing times Indirect tax forum www.pwc.co.uk Indirect tax forum 5 Agenda 13.30 Registration 14.00 Welcome and update on hot topics Martin Blanche, 14.20 Workshop session 1 15.00 Tea break 15.20 Workshop session 2 16.00 Guest speaker