The United Kingdom is a third country in terms of VAT

At midnight on New Year's Eve, the transitional period ceased to apply after the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union, and Great Britain became a third country in terms of value added tax. When selling to the UK, the customs administration will increase, but paradoxically, this will make it easier to prove the VAT exemption. Deliveries will no longer be reported in the recapitulative statement and all EU acknowledgments of receipt of goods will in principle replace the customs office's decision to exit the goods from the EU, at least where the goods will go under the customs export procedure.

When compiling the tax return for December or January, we may come across deliveries that were started in December, but the customer did not receive the goods until January. In these cases, the correct delivery will be reported according to the EU rules for the movement of goods, ie outside the import and export regime, even in a situation where the goods will cross the border of the European Union only in January.

  • Example: A customer from Great Britain ordered the delivery of parts for production from a Czech payer. The payer handed over the parts to the carrier in Pilsen on December 29, 2020. The delivery did not enter the United Kingdom until January 4, 2021. It met all the requirements normally required for the exemption of intra-EU supplies.

Third country status for the United Kingdom is not just about confusing the supply of goods for export and the acquisition of goods for import. More fundamentally, it concerns the impossibility of applying the simplifications that apply between Member States. As of January 1, it is no longer possible to use the simplification for tripartite trade, the warehousing regime, the EU rules for the supply and acquisition of new means of transport or the shipment rule, which allowed the Czech Republic to tax these supplies until the limit for shipments to the UK is exceeded. Since January, trade with the United Kingdom has been governed by the same VAT rules as other non-EU countries, such as the United States, China and Russia.

The exception remains trade with Northern Ireland, which is still an EU Member State for the delivery of goods after 1 January and will therefore use a tax identification number prefixed with "XI". However, this exception does not apply to the provision of services where Northern Ireland will be considered a third country.

In cases where the Czech taxpayer has annually applied for a refund of VAT paid in the United Kingdom, it is necessary to take into account the shortened deadline for applications for 2020. Instead of the standard deadline of 30 September 2021, which applies to tax refunds for 2020 from EU countries , there can be a request for a refund of the UK tax for 2020 only until 31 March 2021.


EU-UK Trade and Cooperation Agreement

1. State of play and next steps

On 24 December 2020, the EU and the UK reached an agreement on a post-Brexit trade deal, which applies from 1 January 2021. The deal was approved in writing by EU member states on 29 December but it would have been impossible for the European Parliament to properly scrutinise and vote on the agreement in time for it to enter into force on 1 January. Therefore, the European Commission has proposed that the deal provisionally apply from 1 January until 28 February 2021, which will allow MEPs to examine and vote on the deal early in 2021. The agreement only covers areas of EU competence, which means that the consent of EU national parliaments is not needed for the ratification and full entry into force of the agreement. The UK Parliament approved the deal on 30 December.

2. The trade agreement: key implications

The pact allows for tariff- and quota-free trade in goods, provided that traded goods meet specific rules of origin. But this can be self-certified, which makes it easier for business to comply with the rules and therefore benefit from the deal.

On services, by quitting the single market, it was made clear during the negotiations that the U.K. lost some market access for trade in financial services. This is still the case since there is no provision for the sector in the agreement. Instead, the parties have agreed to try and reach a memorandum of understanding by March 2021, which might mean the two sides agree to recognise each other’s rules, a process known as “equivalence”, which would allow the finance industry to trade across the border.

Passporting, which allowed automatic access to the single market for UK financial services firms, is gone, as is Mutual Recognition of Professional Qualifications (MRPQs), the mechanism that allows professionals such as accountants, doctors, engineers and architects to have their qualifications recognised across member states. This will not be simply rolled over. A short summary document from the EU on the EU-UK agreement states that there will be “facilitations for short-term business trips and temporary secondments of highly-skilled employees.” The UK side said: “From early 2021, the government will provide help and guidance to U.K. regulatory authorities and professional bodies” on how to make use of a framework for MRPQs within the deal.

There is a provision for the flow of data until the two sides decide that each other’s data protection rules are strong enough to allow data to move between the UK and the EU (so-called “adequacy decisions”). But this temporary provision will last for “no longer than 6 months,” according to the UK.

The competition policy provisions contained in the agreement are copied and pasted from the EU treaties, such as the prohibition of cartels and the abuse of dominant position.

On subsidies, a party may swiftly adopt “remedial measures” unilaterally if there is evidence that the subsidy has or will cause a significant negative impact on trade or investment between the parties. In the end, an arbitration tribunal may be called upon to decide whether the remedial measure was consistent with the agreement. The parties also agreed on a joint political declaration that covers subsidy controls and offers specific examples of instances where state aid might be acceptable.

The agreement incorporates the OECD Base Erosion and Profit Shifting (BEPS) Action Plan and related country-by-country reporting requirements by companies as well as extensive information-sharing between tax authorities. In addition, the parties set out in a separate joint declaration specific principles on countering harmful tax regimes and affirmed jointly their commitment to apply these principles.

A binding and enforceable commitment of non-regression was included in the chapters dedicated to labour and social standards as well as environment and climate, ensuring that the current levels of protection in the EU and in the UK will continue to be upheld. Each party also committed to seek to increase over time its levels of protection in these areas.

Stuart Harbinson, Senior Consultant at Hume Brophy and BDO Global Office