BREXIT

United Kingdom’s exit from the EU

Dean Košar Dean KošarDean Košar

The fate of Brexitis not sealed yet, but 29 March 2019 (Brexits scheduled date) is inexorably approaching. By leaving the EU, the United Kingdom will become a non-member country, and the flows of goods and services between the EU and the United Kingdom will be subject to the rules applicable to third countries. In the event that no Brexit deal is reached between the UK and the EU, a transitional period will begin, during which the free movement of goods and services will continue.

Purpose and objective of the amendment to the Value Added Tax Act (ZDDV-1K)

On 29 March 2017, the United Kingdom of Great Britain and Northern Ireland (UK) filed a formal notification of its withdrawal from the European Union (EU). Two years after the notification, on 29 March 2019, the UK is expected to effectively withdraw from the EU, thus becoming a non-member country from the point of view of the EU. However, negotiations on the possibility of Brexit being postponed until 30 June 2019 are currently taking place. The consequences of Brexit will depend on whether the UK will withdraw from the EU with or without a deal.

In the event of a no-deal Brexit, the UK will immediately become a non-member country, and the EU’s rules applicable to non-members will begin to apply to the UK starting 30 March 2019. In the event that a transitional period is agreed between the UK and the EU, certain single-market and customs-union rules will still continue to apply to the UK from 30 March 2019 until the end of 2020, which means that the free movement of goods and services between the EU and the UK will be in effect until the end of the transitional period.

Brexit will affect customs duties, indirect taxes, and prohibitions and restrictions.

Customs duties

Brexit will make the UK a non-member country from the EU perspective. From the moment of Brexit the EU’s customs rules will no longer apply to the UK. Goods imported from the UK into the EU’s customs territory and goods brought from the EU’s customs territory into the UK will be treated as imports and exports and will be subject to customs supervision, customs controls and associated duties. Customs declaration will be required when importing and exporting goods. Under the VAT Directive, VAT will be levied on imports, while exports will be exempt from VAT.

The licences of authorised economic operators (AEOs) and other authorisations for customs simplifications issued by the customs authorities of the UK will no longer be in effect in the EU’s customs territory after Brexit.

Release for free circulation in accordance with procedures 42 and 63

As the UK will become a non-member country from the EU perspective, it will no longer be possible to apply procedures 42 and 63 to EU goods imported into the UK.

UK economic operators importing goods into Slovenia under procedures 42 and 63 will have to have a Slovenian VAT ID number for approval of these procedures and appointed tax representative in Slovenia. Up until now, as importers from another EU member state, they have been able to choose between obtaining a Slovenian VAT ID number or appointing a tax representative in Slovenia. As such choice applies only to importers from EU member states, but not to non-members, after Brexit importers from the UK will have to cumulatively meet both conditions for the application of procedures 42 or 63.

The appointment of a tax representative for a taxpayer from a non-member country is not the same as the appointment of a tax representative for a taxpayer from another EU member state. Any effective tax representation for procedures 42 and 63 for a taxpayer from the UK will no longer be in effect after Brexit. Taxpayers from the UK will have to appoint a new tax representative according to the procedure applicable to third country taxpayers.

VAT

After Brexit, the EU’s rules applicable to non-member countries will apply to taxpayers from the UK also with regard to VAT. This means that taxpayers from the UK in Slovenia will have to appoint a tax representative who will fulfil obligations on their behalf and claim VAT rights (pursuant to the second paragraph of Article 76 of the Value Added Tax (ZDDV-1)). Taxpayers already identified in Slovenia for VAT purposes may appoint their tax representative in Slovenia before Brexit. Such tax representation will also remain in effect after Brexit.

Cross-border deliveries of goods between the UK and the EU will no longer be treated as EU deliveries and acquisitions, but will be treated as imports and exports. The rules applicable to VAT taxation between EU member states will cease to apply to such deliveries. Consequently, such deliveries will no longer be reported in recapitulative statements, while the receipt and delivery of goods between the UK and the EU will no longer be subject to the intrastat reporting. The rules applicable to non-member countries will apply in determining the place of provision of services.

Taxpayers identified in the Mini One Stop Shop (MOSS) regulation in the UK and providing telecommunications, broadcasting and electronic services to end consumers in one of the EU member states will not be able to remain identified in the MOSS in the UK on the day of Brexit and are therefore advised to get identified as soon as possible in the MOSS regulation in one of the EU member states.

After Brexit, the UK rules applicable to taxpayers from non-member countries will apply to taxpayers established in Slovenia who wish to claim a VAT refund from the UK. Taxpayers established in the UK who will claim VAT refunds in Slovenia will have to act in accordance with the ZDDV-1 rules that apply to VAT refunds to taxpayers established in non-member countries.

Excise duties

After Brexit, the movement of excise goods between the customs territories of the EU and the UK will no longer be regarded as movement of excise goods between EU member states under the computerised duty-suspension Excise Movement and Control System (EMCS) or as movement of excise goods with paid excise duties between member states. Export customs formalities will apply to the movement of excise goods from the EU to the UK. The supervision of the movement of excise goods will take place from the excise warehouse to the office of exit from the EU area.

Consignments of excise goods sent from the UK to the EU will be treated as imports from non-member countries. They will be subject to excise duty on imports unless the authorised consignor sends such goods from the place of importation under excise duty suspension arrangements to a person authorised to receive excise goods under excise duty suspension arrangement in EU territory.

The movements of excise goods between Slovenia and the UK that will not have been finalised by the time of Brexit, will be concluded in accordance with the Commission’s excise tax guidelines.

Prohibitions and restrictions

With regard to sales of goods subject to prohibitions or restrictions, approval or authorisation will be required after Brexit for particular goods imported from the UK into the EU or exported from the EU into the UK. So far, such approval has not been required in most cases as the control of the suitability of goods has usually been part of customs control in the EU. Authorisations and licences issued by UK authorities on the basis of European legislation will no longer be effective after Brexit.

Preferential origin of goods

After Brexit, the free trade agreements entered into by the EU and individual countries or groups of countries will no longer apply to the UK. The autonomous arrangements unilaterally adopted by the EU will no longer apply either. Materials (goods) originating in the UK will be considered non-originating materials on the day of Brexit. Cumulation will no longer be possible with these materials, which means that the rules from the relevant list of sufficient treatments or processing will have to be complied with in order to obtain preferential origin.

Transit procedure

As a separate party, the UK will accede to the Convention on a Common Transit Procedure and to the Convention Concerning the Simplification of Formalities in Trade in Goods. This will facilitate the movement of goods with the UK via a common transit procedure for the transport of goods between the UK and the EU and other parties to the Convention on a Common Transit Procedure. From the date of the UK’s accession as a separate party, the provision of a security also valid in the UK will be required for carrying out a joint transit procedure between the UK and the EU. In cases of existing general insurance, it is therefore necessary to amend the insurance instrument (e.g. a guarantor statement) by deleting the UK as an EU member state and adding it as a country of common transit.

Validity and use

The beginning of the application of the rules applicable to non-member countries depends on the manner in which the UK will exit the EU. In the event of a no-deal Brexit, the EU will immediately begin to treat the UK as a non-member country. If a Brexit deal is reached between the EU and the UK, the transitional period during which the free movement of goods and services between the UK and the EU is in effect will continue.