Daryl Hanberry, Tax Partner; Tom Maguire, Tax Partner; and John Stewart, Tax Director at Deloitte, highlight some of the potentially significant tax impacts that Irish firms may have to consider.
VAT, customs and excise duties
Following the transition period, the UK is likely to continue to operate the current VAT system underpinned by UK legislation, though it will be free to make any changes it sees fit. The movement of goods between Ireland and the UK will be subject to border controls, with potential changes to the current customs duty, accounting and customs clearance systems in both countries. Excise duties are local duties imposed by countries within their own borders, and we do not expect a major change to these.
Under the existing rules, Irish businesses selling to UK businesses generally do not have to collect VAT on sales. In future, sales of goods by Irish businesses will become imports in the UK, which, in principle, would attract VAT on importation and possibly customs duty. Determining who will bear the burden of such costs will be a commercial issue. In a number of cases, it may be the Irish supplier, and the Irish supplier will also have to register for VAT in the UK.
For B2C sales, Irish businesses generally either charge Irish VAT or register and charge UK VAT. In the future, all Irish businesses selling goods and services to non-business customers in the UK may have to register and charge UK VAT, which will be an additional cost and compliance burden.
For goods coming into Ireland from the UK, Irish import VAT and customs duty could be payable. Again, whether the supplier or the customer bears that cost will be a commercial issue.
EU staff in the UK/UK staff in Ireland
In the area of cross-border workers, there are a number of things to consider from immigration, mobility and reward perspectives.
The Common Travel Area (CTA) pre-dates Irish and British membership of the EU and this will continue to exist regardless of the future relationship between the UK and the EU. The CTA is an integral part of the Withdrawal Agreement that was agreed to by the EU and UK negotiators and it ensures that Irish citizens can continue to live and work in the UK, and vice versa. Neither British or Irish citizens need to take any action to protect their rights and status associated with the CTA. Free movement of workers will end in the UK and EU citizens currently residing in the UK will need to apply to the mandatory EU Settlement Scheme to continue living and working in the UK. EU citizens who wish to move to the UK after December 31st 2020 will need to satisfy the requirements of the new UK immigration system which is being developed.
UK assignees remunerated in sterling in Ireland will have seen their compensation package drop significantly since the vote with the fall in the value of sterling. In many circumstances, this has led to requests for a review or has triggered an “exceptional circumstances” clause in company policies.
Potentially worsening UK budget deficits may lead to increases in income tax in the UK, with direct impacts on UK-based employees. Social security will need to be considered and, while there are Ireland-UK social security agreements separate to EU legislation, additional paperwork may be necessary.
Individuals who hold shares in Irish or UK companies were likely to have been affected by market volatility. For employees, this may also have affected the value of any share-based remuneration. For senior executives whose reward may be based on a number of factors (including share price), this may affect whether they meet their objectives and receive incentive-based remuneration. Companies should consider aligning rewards with actual performance rather than factors outside the individual’s control.
Although direct taxes (such as income tax and corporation tax) are a national competency, for EU members, such competency must be exercised in accordance with the European Treaties. The UK has implemented a number of tax directives to aid intra-EU trade and administrative cooperation.
After the transition period concludes, these directives would, in principle, not apply, so that withholding tax on payments to and from the UK may become applicable (subject to domestic law provisions). Similarly, the benefits for certain corporate restructurings involving the Mergers Directive may not apply.
The four EU Treaty freedoms (free movement of people and capital, provision of services and freedom of establishment) are relevant for direct tax. The EU Treaties’ state aid provisions may also be relevant. The UK may have to consider additional tax law amendments to ensure it remains competitive and continues to attract foreign direct investment in the post-exit regime.
Some UK tax reliefs are offered only in relation to EU member states. One could find those reliefs withdrawn unless the UK attains EEA like status. Similarly, EU preferential tax treatments are included in other Member States’ legislation and would likely expire once the UK leaves the EU.