Not so long ago we were promised a red, white and blue Brexit, but it would appear that the true colours of Brexit are green, yellow and white. The terms of the draft transition agreement, which looks set to be agreed in principle by the EU27 tomorrow, was duly unveiled in these colours by the negotiators in order to show those parts of the text that are agreed (highlighted in green), those where the policy is agreed but the wording is not (yellow) and those where there is no agreement as yet (not highlighted).
What does it mean for tax?
- The position on customs duties is in the green channel. The existing customs arrangements are set to remain in place until the end of the transition period (31 December 2020) so that imports and exports of goods between the UK and EU27 despatched on or before that date will be duty free (even if they have not reached their final destination). After that, who knows? The position will turn on the shape of any trade deal with the EU. Absent any agreement, and given the UK Government's undertaking to file WTO schedules based on the existing EU arrangements, the EU common external tariff will apply to imports and exports from and to the EU27.
- Also in green, EU law will apply during the transition period and the UK will be treated as an EU member state for these purposes (even though technically it will not be). So important directives such as the EU parent subsidiary directive and interest and royalties directive will continue to apply to eliminate withholding taxes on cross-border payments. This also extends to new laws and directives - so, for example, it looks as though the UK will have to implement ATAD and ATAD2 - but not to enhanced co-operation measures.
- A little oddly perhaps, VAT is in yellow. In principle, it is agreed that the Principal VAT Directive will continue to apply in the UK during the transition period and rights and obligations from transactions occurring in the transition period (that's input tax and output tax to you and me) will remain enforceable for five years after the end of the transition period.
- On part that remains in firmly in white, perhaps unsurprisingly, is the scope of the jurisdiction of the CJEU.
Speaking in Brussels, Tusk said: “On Brexit, I have some good news for prime minister Theresa May. News that has been awaited in London but also in all the other EU capitals. I have just recommended to our leaders that we welcome in principle the agreement on transition. In practice, the transition phase will allow us to delay all the negative consequences of Brexit by another 21 months.”