Cake and Eat It

Any type of Brexit will reset the terms of trade between the UK and European Union. It will cause some types of UK to EU trade and some types of EU to UK trade to cease to be viable.

Every business knows the value of goodwill and client base. A UK business can make the most of Brexit by taking advantage of domestic UK opportunities while also establishing a base within Ireland to continue to serve its EU clients and markets without customs and regulatory barriers.

An Irish subsidiary it can facilitate importation into the EU of goods at a sufficiently large scale which is cost efficient from a customs and VAT perspective.  Otherwise any EU importation would require the customer to undertake import declarations which may be both practically and economically unviable. In this way a business can truly have its cake and eat it.

Brexit and Trade Barriers

The inevitable effect of any kind of Brexit is that some areas of UK to EU trade will cease to be viable, while corresponding areas of EU to UK trade will cease to be viable. Even  under a free-trade agreement without customs duties, significant new costs, barriers and procedures will apply. These costs barriers and obstacles are far from immediately apparent, but are very significant.

Every movement of goods from the UK to the EU and vice versa will require an exit notice, export customs declaration and manifest to HMRC and an entry notice, import customs declaration and manifest to the EU revenue authority. Each requires a significant amount of very specific data much of it overlapping.

The declarations must be undertaken whether  by the trader directly by the freight forwarder or other customs agent, and will be required  for each consignment where there is a  movement of goods (whether by ship, ferry air or road transport) from a particular exporter to a particular importer. Extra costs will arise in completing the above requirements whether by way of the importer and exporter’s internal staff or by way of fees and extra costs incurred by their freight forwarders or  customs agents, in both acting on their behalf and undertaking additional new processes.

Apart from these direct fees, these are very likely to be fees for the services of freight forwarders, customs agents, carriers and port authorities, where revenue interventions occur. The extent to which interventions may arise by the revenue authorities  will be affected by the nature of the goods themselves and other goods with which they are bundled. In the food and agriculture sectors, intervention with border checks and certificates  are required in a very high percentage of movements and in some cases, on all movements.

Even where goods are exported from the UK to EU, they would require to be of UK origin in order to qualify for any favourable duty under an EU UK trade agreement. This will require a certificate of origin in each case. The requirements for the certificate of origin depend on the risk profile of the goods and may require a specific application to an independent body such as a trade chamber to certify underlying facts.

The default position is that VAT must be paid on goods when they arrive in the state of import. Many EU states allow for deferral of VAT so that it is payable at the end of the VAT period and for business importers may effectively be rolled over onto the eventual sale. However even in these cases, a guarantee is commonly required.

Effect of Additional Procedures and Costs

Certain  lines of UK to EU businesses will no longer be economic because the costs of complying with these processes make the  EU trade in the goods concerned no longer competitive. (The same will apply to EU to UK trade, with corresponding trading opportunities within the UK for UK businesses)

In some cases, the basic costs of making the declarations and giving the notices for each specific sale, will make low value consignments uneconomic. In other cases, the degree of revenue interventions, licensing, checking at the border will significantly increase costs incurred with freight forwarders customs agents and transport companies and may cause particular trade to be no longer viable.

The extent of these additional costs, which may be significantly more than basic declaration and notice compliance costs, will not be apparent until the degree of revenue authority intervention and checking becomes apparent. To some extent this is a function of the effective trusted status of the trader and carrier with reference to the revenue authority’s risk profile.

With Brexit, many traders will be start with no customs track record, with an enormous increase in work, in some cases undertaken by newly recruited inexperienced personnel in the firm and in revenue authorities, with a corresponding greater scope for error and a very steep learning curve for all involved.

Opportunities with Irish Subsisdiary

Opportunities for substitution by domestic UK businesses will arise in sectors and segments of the market where importing from the EU is no longer competitive. Equally opportunities will arise in the EU  in sectors and segments of the market, where imports from the UK are no longer competitive. The Irish subsidiary as an EU established entity would have most of the key EU rights to sell goods provide services establish further branches.

By having an Irish subsidiary or other establishment, a UK company may either import from third countries or from the UK into Ireland in quantities sufficient to make the costs of the process viable. More importantly by completing the import processes, the goods will be in free circulation in the European Union so that the customer will not be required to act as importer of record.

There may be simplified import procedures between UK and Ireland in the context of management of the Northern Ireland border. Even if they do not apply directly to Great Britain to Republic of Ireland trade, it may make logistical sense to route movements of goods through Northern Ireland.

It is likely that the customs controls around transport movements will not be as significant in the case of Ireland to Northern Ireland trade and vice versa and that the system will depend far more on checks and records at the premises of the importer and exporter. This may make it easier viable to undertake customs declarations inhouse, given that the transportation elements of the movement which are usually central in any customs movement will be less critical, in view of the avowed intention not to have border controls or checks in this case.

The Irish subsidiary could also import goods from the EU free of customs duties self accounting for VAT so that no net liability arises in most cases.

Where the goods are imported by an Irish subsidiary for the purpose of onward sale, no immediate VAT charge will arise in most cases. Ireland has legislated for deferred import VAT in the event of Brexit so that the liability for VAT would be postponed until the VAT return date. If as with the usual in the case of a business purchaser, the subsidiary is buying for the purpose of onward vatable sales in the EU, a credit may be claimed against VAT on the purchase at the same time as the due date for VAT leaving no net  VAT liability at this point.

VAT would only arise on a sale to later a non-VAT registered entity such as a consumer. The goods might for example be sold directly to another business in the EU without any Irish VAT with the VAT registered business purchaser self accounting for VAT