Post EU Referendum Managing the Indirect Tax Landscape

Transcription

1 Post EU Referendum Managing the Indirect Tax Landscape 1 July 2016

2 Brexit - Keep Calm and Carry On AGENDA Brexit - What now? What are the macro implications? What are the indirect tax implications? What can you do now? Page 2

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

4 Brexit political reaction UK EU 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 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. Page 4

5 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 rejoin, its request shall be subject to the procedure referred to in Article 49. Page 5

6 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? Page 6

7 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 Page 7

8 Indirect Taxes and Trade Page 8

9 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. Page 9

10 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 Page 10

11 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 Page 11

12 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 Page 12

13 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 Page 13

14 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 Persuasive Persuasive No Part No (for agreed products) Bi-lateral agreement/ Customs Union/ WTO CH Turkey Singapore Canada Part No 13 th D No No Yes No Yes No No 13 th D Page 14

15 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. Page 15

16 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 Page 16

17 EY Indirect Tax Approach Page 17

18 Planning for indirect tax uncertainty Phase 1 Phase 2 Phase 3 Phase 4 Impact Assessment 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 Page 18

19 EY Brexit Impact Modelling Page 19

20 Impact Assessment Outcome 1 Page 20

21 Impact Assessment Outcome 2 Page 21

22 Industry insight Page 22

23 Financial Services Paul Cockayne High-level comparison with other models: UK Currently Norway Switzerland Definition of Financial services Identical to VAT Directive Similar to VAT Directive Similar to VAT Directive Input tax Credit for FS Supplies to EU countries No No No Input tax Credit for FS Supplies to Non-EU countries Yes No No Head office to Branch Supplies Disregarded Disregarded In scope Consideration of CJEU caselaw Binding Persuasive No consideration Specific areas where the UK has taken a more liberal approach to the EU legislation and case-law: Arthur Anderson (C-427/03): UK have not formally implemented this decision into UK law despite the amount of time that has elapsed since the judgment. Skandia (C-7/13): HMRC have interpreted the judgement in a way that is generally favourable to UK financial service providers. Has any pressure to fall in line abated? Financial intermediary services UK s implementation into domestic legislation is arguably broader and more favourable than the Principal VAT Directive. Will this be the basis of a wholesale departure? Page 23 UK Referendum on EU membership

24 Technology Media Telecoms Jo Crookshank Areas of focus for the sector - services Use and enjoyment rules? Significant impact if these are removed. Voucher Directive how/will this be implemented in the UK? Businesses may welcome simplification B2C cross border supplies of services 2015 rules? How will the UK operate these rules going forwards? Will Article 9a (intermediary supplies) be revisited by the UK tax authorities and if so is there greater risk of divergence from EU rules? Opportunities for zero rating e-publications? Tour Operators Margin Scheme review? Will UK tour operators want to maintain the status quo? Q: Should a VAT double taxation treaty form an essential part of the Brexit procedures? Specific areas where the UK may revisit EU legislation and case-law: C-520/10 (Lebara) cross border supplies of phone cards which resulted in the introduction of new SPV legislation opportunity for HMRC to revisit this? C-479/13 (Commission v France) and C-502/13 (Commission v Luxembourg): e-books/journals currently standard-rated under EU law lobbying opportunity for zero-rating (as for printed matter)? C-607/14 (Bookit/NEC): CJEU upheld taxability of booking services (which was also HMRC s position) opportunity to re-open debate on exemption for these services? Page 24 UK Referendum on EU membership

25 Industry insight EY Indirect Tax approach Industry Leadership Regular industry updates Indirect Tax Brexit Webcasts and news Share consolidated impact assessment output Work with HM Treasury and HMRC Policy Lobbying Next event 29 th September 2016 Jo Crookshank Technology Media Telecommunications Kal Siddique Energy Andy Bradford - Aviation Jamie Ratcliffe Consumer Products Simon Baxter Retail Paul Cockayne Financial Services Charles Brayne Life Sciences Mitchell Moss Litigation Martyne Pearson - Travel Page 25

26 So what s next? Page 26

27 The future landscape Unilateral free trade or introduction of tariffs in the UK? FTA agreement with EU? Grandfathering of existing EU FTAs or new FTAs? Invest in modernizing the customs system? Access to direct tax directives or improved double tax treaties? Points system for migrants? Lower CT rate to improve business climate? Incentives Page 27

28 Meanwhile other developments carry on BEPS is ongoing EU Vouchers Pensions changes Finance Act 2016 Royal Assent? Autumn Statement November/December 2016 Finance Bill 2017? Page 28

29 Questions Page 29

30 Key messages Keep calm and carry on Changes will take time to come into effect Use the time to plan for the future Scenario and impact planning is possible Identify the risks to your business across the areas Engage with government(s) and trade/industry bodies Form or be part of Brexit Steering groups Join EY Indirect Tax Industry focus groups and communications Page 30

31 Tea, Coffee and Discussion Vista Suite 9th Floor Turn left and left again and take the first lift to the 9 th floor Page 31