While ratification by the UK of the Withdrawal Agreement remains a possibility (and the Irish Government’s preference), businesses should prepare for the possibility of the UK failing to agree a deal for their departure from the EU in advance of 12 April.
We have set out below the key considerations for businesses operating in a "no-deal" Brexit scenario from an Irish tax perspective.
Value Added Tax
As it currently stands, in the event of a no-deal Brexit, the UK will be treated as being outside the EU from 11 pm on 12 April 2019. As a result, goods entering Ireland from the UK will be treated as imports and Irish VAT may become payable at the time of importation giving rise to cash flow considerations. With a view to mitigating this cash flow cost, the Irish Government has announced that it will introduce postponed VAT accounting for affected businesses. Although postponed VAT accounting will automatically apply from 11 pm on 12 April 2019 in the event of a "no-deal" Brexit, businesses that are affected should be aware that the status can only be retained on an extended basis by making an application to the Irish Revenue Commissioners (“Revenue”).
The VAT treatment of services received by Irish businesses from UK providers and made to UK customers should not be significantly impacted. Any online businesses that had registered in the UK to pay all EU VAT under the mini one-stop shop (“MOSS”) arrangements will be required to re-register in an EU Member State in order to comply with their EU VAT obligations after 12 April. Businesses using a MOSS registration in another EU Member State (including Ireland) to account for UK VAT on supplies to UK customers will no longer be able to do so and may have a VAT registration obligation in the UK.
Customs
In addition, on the occurrence of a no-deal Brexit, the UK will be treated as being outside the Customs Union from 11 pm on 12 April 2019. As a result, goods entering Ireland from the UK will be treated as imports and EU customs duties may become payable and requirements to make customs declarations may apply.
In the first instance any business that trades with the UK (or any non-EU country) must have an Economic Operator Registration and Identification (“EORI”) number. Generally, these are relatively easy and quick to obtain from Revenue through the Revenue Online Service.
A "no-deal" Brexit will result in customs duties becoming payable on some (although not all) imports where no charge currently arises. This will be a real cost for businesses to absorb or pass on to their customers. This cost may fall on the supplier or customer depending on the contractual terms of the applicable agreements.
Businesses with a significant level of trade with the UK and non-EU countries may have an in-house trade team to ensure compliance with customs requirements (including payment of duties and making the required declarations). It is also possible to register as an authorised economic operator (“AEO”) and while that status can permit businesses additional time to discharge customs duties. AEO status generally requires a higher compliance burden to be met and is not suitable for all businesses given the compliance costs which can arise when compared to the benefits.
Those who already hold AEO status should be aware that if it is held through a UK approval it may no longer be valid clearance in the EU subsequent to Brexit. Equally, non-UK AEO holders may need to reapply for the UK equivalent status subsequent to Brexit.
Businesses that have limited trade with the UK and non-EU countries may prefer to appoint a customs clearance agent to assist with customs duties compliance obligations.
Withholding Taxes
For as long as the UK is a member of the EU the Parent Subsidiary Directive and Interest and Royalty Directive should apply to mitigate Irish and UK withholding taxes on payments of interest, royalties and dividends between related companies. Even in the event of a no-deal Brexit, this treatment should continue to apply:
- Irish domestic law provides full exemptions from withholding tax on dividend, interest or royalty payments made to companies resident in the UK, although, in some cases forms must be completed to access the dividend withholding tax exemption;
- we understand that the UK does not impose withholding tax on dividend payments;
- the Ireland / UK double tax treaty provides for a full exemption from withholding tax on interest, royalty and dividend payments made to Irish residents. It may be necessary to satisfy certain administrative requirements and complete forms to avail of these exemptions.
Tax Groups
The Finance Act 2017 extended the Irish capital gains tax (“CGT”) group rules to ensure that the presence of a UK entity in a chain of grouped Irish entities would not result in unintended de-grouping charges on the UK’s exit from the EU.
Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2019 (the “Brexit Omnibus Bill”) will permit Irish branches of UK resident companies to obtain the benefit of group relief provisions (surrender of losses and mitigation of Irish withholding tax on interest and royalties) post-Brexit. Currently these reliefs are restricted to companies that are resident in the EU. They will be extended to cover UK resident entities in the immediate future following a no-deal Brexit.
US Double Tax Treaty Access
In order to obtain the benefit of the Ireland / US double tax treaty Irish resident taxpayers must satisfy a limitation on benefits provision (similar to almost all US double tax treaties). The limitation on benefits provision can be satisfied in a number of ways including under a derivative benefits provision which (in broad terms) ensures that the benefit of the treaty will be available to Irish resident companies that are owned directly or indirectly by residents of EU Member States. Irish resident taxpayers who currently rely on UK owners to satisfy the derivative benefits test will need to consider whether there are other ways they can satisfy the limitation on benefits provision to ensure US treaty access continues to be available.
Personnel Travelling to Ireland
Although not only relevant to a no-deal Brexit, UK businesses that may have personnel visiting Ireland more frequently (whether as part of establishing and assisting Irish operations or otherwise) should be aware of the potential payroll tax implications.
Under Irish law there is a relatively low threshold for the number of days an employee can spend carrying out duties in Ireland before an Irish payroll tax obligation arises. Where the presence of an employee in Ireland is not expected to exceed two consecutive years, then provided the total workdays in Ireland does not exceed 60 days during the two year period no requirement to register for Irish payroll taxes should apply. However, where this 60 day limit is exceeded within a two year period or where an employee is expected to be in Ireland over three or more consecutive years (regardless of the time spent on each occasion), then a clearance must be obtained from Revenue to avail of an exemption from Irish payroll obligations.
The obligations imposed on employers in these cases are primarily administrative (provided the relevant conditions are satisfied) but they are important to be aware of as the requirement to obtain clearance applies 30 days from the employee’s commencement of duties in Ireland. This time limit can be unintentionally breached quite easily particularly where the pattern of business travel to Ireland may not be known at the outset.
Of course, if employees of a UK employer regularly spend time in Ireland carrying on activities on behalf of their UK employer broader corporation tax issues (for example, permanent establishment risk) should be considered.
Conclusion
This document is designed to operate as a checklist to give businesses a roadmap for the key tax matters they should be considering in the event of a no-deal Brexit.
If you require further detail on any of the points raised or how they might apply to your business, please speak to your usual Matheson contact or to any of our Tax Partners.