Brexit Brief – what should we do now

PwC Indirect Tax Forum - 2018

17 April 2018

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What is Brexit?

Most fundamental change to UK trade with the EU and rest of the world in decades, with a new customs border created between the UK and EU.

Exact Brexit model should be negotiated over 2 years following triggering of Art 50. Wasn’t possible now we have a Transition Period until December 2020 / April 2021.

Impact felt by traders now, so many are preparing for Brexit already. With the potential for indirect tax changes to take effect from as early as April 2019.

Political Environment is constantly evolving which creates uncertainty for all EU traders.

Could a redline issue breakdown mean we Brexit before December 2020 / April 2021?

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Deal or no deal?

TIMELINE DEAL STATUS

2017 Q4 Article 50 negotiating period

EU membership terms2018 Q1

Q2

Q3

Q4

2019 Q1

Q2 Transition - ‘Extra time’

Outside the EUBut market access ongoing for business purpose

‘four freedoms’ apply, ECJ applies; no UK votes – rule taker, not maker

No Deal

WTO trading termsQ3Q4

2020 Q1

Q2Q3Q4

2021 Q1 Full Deal(starting with an ‘implementation’ /period?)

“Canada + +++”

No Deal

WTO trading termsQ2

Q3

UK outside of the Customs Union, outside of the Single Market and outside of Freedom of Movement rules

Slide 3

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Type of businesses and industries impacted by Brexit

4

UK businesses that frequently

• purchase raw materials or finished goods from other EU Member States

• import goods from non-EU countries with EU FTA’s or that are subject to tariff suspensions

• sell raw materials or finished goods to EU customers

• sell raw materials or finished goods to non-EU countries we have FTA’s with

Overseas businesses that frequently

• EU businesses that purchase raw materials or finished goods from the UK

• EU businesses that sell raw materials or finished goods to UK customers

• Non-EU businesses that purchase raw materials and finished goods from UK suppliers under FTA agreements

• Non-EU businesses that sell raw materials and finished goods to UK purchasers under FTA agreements

Typical Industries – most affected by Brexit (due to higher duty rates)

• Automotive (manufacturers and parts suppliers)

• Fashion (accessories, clothing and shoes)

• Food (foodstuffs, finished foods and beverages)

• Electrical / Machinery (household electricals / industrial machinery, not computers)

• Remember any business moving high volumes of goods can have a huge Brexit cost!

Everyone trading in any type of goods between UK and the EU

Anyone importing into or exporting from the UK to Free

Trade Agreement countries

Possible landing zones

EU exit with FTA and supporting agreements

in place, based on best previous agreed

provisions

Free Trade Agreement (CETA): A

comprehensive FTA, modelled on EU best in-

class FTAs (e.g. CETA), with some enhanced

alignment on regulations and customs

Agreement to cooperate on alignment of

regulation, including limited equivalence and

mutual recognition, with bilateral dispute

mechanism with recourse to WTO.

Tariff free access for manufactured and most

agricultural goods. Customs procedures

introduced for EU goods trade with agreed

streamlining. Agreement on which service

sectors will remain open and exemptions.

Labour mobility is streamlined, with

facilitated visa regimes limited to certain

professions or visa categories.

Continued paid access to Horizon 2020. UK

continues to collaborate with EU on innovation,

data sharing and IP

EU exit with no FTA in place.

WTO agreement: A comprehensive

agreement is not reached and the UK

moves to a default WTO trading

relationship

No agreed regulatory cooperation.

Potential for future divergence. Loss of

market access in some areas, particular

heavily regulated sectors.

UK trades goods with the EU / EU-FTA

countries on WTO. No preferential

clearance programmes are in place,

creating delays and costs

No facilitation of free movement between

UK-EU. More restrictive visa regime

introduced.

Loss of access to all EU funding. UK

diverges from the EU – restricting data

sharing, innovation and IP

People

Regulation

Commercial

& trade

Innovation

EU exit with ambitious bespoke FTA and

supporting agreements in place

Free Trade Agreement (“Canada Plus Plus

Plus”): A comprehensive FTA, building on EU

best in-class FTAs, with extensive alignment

and high degrees of flexibility

Agreed harmonisation of regulatory

outcomes (goods and services) and mutual

recognition. Enhanced bilateral dispute

mechanisms / court. Ongoing UK membership

of key EU agencies.

Tariff free access for all goods meeting Origin

Rules. Customs procedures are streamlined.

Extensive negotiated access for services based

on extensive regulatory alignment and/or

mutual recognition.

Quasi-free movement of workers with

priority skills with generous agreed quotas

and/or triggers for controlled movement.

Continued paid access to Horizon 2020. UK

continues to collaborate with EU on innovation,

data sharing and IP

Canada ‘base model’‘Canada plus plus plus’ ‘No deal’

Analysis of the negotiating red lines from the UK and EU allows for the possible landing zones for the future deal with the EU to be mapped in sufficient detail to allow meaningful plans, with defined triggers, to be built now.

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Planning for the impact of BrexitImpact mostly focused in 3 key areas

How will Brexit affect the UK economy, the value of the GBP, and demand for an industry or business’ products?

Strategy &business plan

What does trade between the UK and the rest of the world look like following Brexit and what impact will this have on cost, admin and time?

Trade &customs 1 3

What impact will changes to immigration in the light of Brexit have on the workforce, operating models and how can the industry and individual businesses prepare?

People &immigration 2

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Deal or no deal?

TIMELINE DEAL STATUS

2017 Q4 Article 50 negotiating period

EU membership terms2018 Q1

Q2

Q3

Q4

2019 Q1

Q2 Transition - ‘Extra time’

Outside the EUBut market access ongoing for business purpose

‘four freedoms’ apply, ECJ applies; no UK votes – rule taker, not maker

No Deal

WTO trading termsQ3Q4

2020 Q1

Q2Q3Q4

2021 Q1 Full Deal(starting with an ‘implementation’ /period?)

“Canada + +++”

No Deal

WTO trading termsQ2

Q3

UK outside of the Customs Union, outside of the Single Market and outside of Freedom of Movement rules

Slide 7

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Key Risk Areas

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Trade and customs impactsSpecific impacts will vary by sector and company

There are 16 factors within three overall categories that will be negotiated, and that therefore will provide uncertainty to trading businesses.

Not all of these will be relevant to all businesses but this represents the ‘checklist’ as to what might move for or against a sector or company.

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Turning planning into action – What to do now

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Our scenarios analysis indicates that there are several areas where impacts will be felt in all scenarios, meaning there are some ‘no regret’ decisions that can be made now, that will build readiness for whatever may happen.

Appoint a person or team to get your business ready for Brexit. Do they have sufficient C-Suite backing?

1 Undertake a Brexit Impact Assessment – Trade & Customs, People & Immigration and Strategy & Business.

2

Create a Brexit Step Plan, pull together stakeholders for change, understand each action and timeline them over next two years.

3Don’t simply plan for Brexit but for your trading years beyond it!

4

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Turning planning into action – No Regret Actions

Anticipated impact “No regret” Actions to consider now

New customs declarations for EU trade

Review and upgrade your IT systems and data processes to record EU trade accurately Review and upgrade your product data to ensure imports and exports are appropriately classified for customs purposes

Customs declaration complexity and border delays

Apply for customs facilitations, to ease administration at the border, reduce clearance times or negate the double payment of customs duty and import VAT e.g. AEO, CFSP, Customs Warehousing

Mapping your Supply Chainswill they meet the rules of origin thresholds for UK content

Map your supply chains to understand the impact of this new international border on admin costs and indirect tax costsIdentify the levels of EU, non-EU and domestic content in main product to ascertain whether customs duty cost can be negated

Contractual / commercial exposure from supply chain

Updating contractual terms with key customers and suppliers - in particular freight and logistics - clarifying distribution of risks and Brexitrelated costs

Reduced access to EU labour and workforce

Identification of EU nationals in workforce and support with registration for Settled Status or other residency rights

11

Our scenarios analysis indicates that there are several areas where impacts will be felt in all scenarios, meaning there are some ‘no regret’ decisions that can be made now, that will build readiness for whatever may happen.

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Specific example of a 2 year Brexit plan

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Contact information

Matthew Paul ClarkHead of PwC - Customs, Excise & International Trade Team

Office location: UK – Embankment Place, LondonMobile +44 (0) 7718 339 388Email: matthew.p.clark@pwc.compwc.com