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Irish FinMin Considers Impact Of Brexit On Taxes

by Jason Gorringe,, London

02 August 2017

As part of the Irish Budgetary process, officials from the Finance Department have published a paper on the implications of Brexit for Ireland's tax system.

The paper was prepared for consideration by the Tax Strategy Group (TSG), an interdepartmental committee chaired by the Finance Department. The papers produced by the Department are intended to provide information on options and issues to be considered in drawing up the Budget.

The paper considers the impact Brexit will have on the administration and collection of individual taxes in Ireland, and on Exchequer revenues. It also examines the prospect of a "disorderly" Brexit, where the UK would leave the EU without any agreement in place.

Department officials expect Brexit to have the greatest impact upon Ireland's indirect taxes, with value-added tax (VAT) and excise duties to be especially affected. The UK will become a third country for VAT supplies, and supplies to and from the UK will be classed as exports/imports rather than supplies/acquisitions as at present.

The paper stated: "This will involve a substantial initial administrative burden on businesses with systems development issues to deal with changed practices, the review of existing legal contractual arrangements, business models, etc. EU simplifications, such as consignment stock and triangulation, which assist compliance in more complex supply chains, will no longer be available to the UK, and this could have a significant impact on the operation of Irish businesses engaging with UK businesses depending on the outcome of the negotiations."

The UK will also have greater flexibility in setting VAT rates. The paper warned that reduced VAT rates could lead to increased cross-border shopping, particularly if combined with weaker sterling. This could in turn increase pressure to reduce VAT rates in Ireland.

According to the paper, Brexit should not have a significant impact on Ireland's direct taxes, because the double taxation agreement between Ireland and the UK will remain unaffected. However, the paper did note that Brexit will pose a challenge in terms of tax competition, especially if the UK decided to pursue aggressive income tax cuts. In addition, the UK would not be bound by EU state aid rules, and could undercut Ireland by offering better tax incentives and funding aids to businesses.

On the company tax front, the paper observed that the UK Government intends to continue with its plan to reduce its corporate tax rate to 17 percent by 2020. The paper stated that, although Brexit will take the UK outside the scope of the EU's Direct Tax Directives, the UK has consistently supported the OECD's BEPS project. The Ireland-UK DTA should provide certainty as to the taxation of cross-border flows of interest and dividends.

The final prospect considered in the paper is that of a "disorderly" Brexit. It explained that, in the absence of a new EU-UK agreement, the taxation and customs administration implications would include: the immediate imposition of tariff and non-tariff barriers; the immediate imposition of customs controls at ports and airports, including a hard border on the island of Ireland; immediate border infrastructure and transit requirements; and EU tax legislation no longer applying to the UK.

The paper stated: "The impact on traders and hauliers would be huge. In particular, food supplies would need a system of producer and processor certification backed up by comprehensive inspection at Ireland's borders … There would also be an incentive to criminality arising from the high tariff barriers that would apply."

TAGS: compliance | VAT rates | tax | business | free trade agreement (FTA) | tax compliance | Ireland | tax incentives | export duty | interest | trade treaty | corporation tax | United Kingdom | tax thresholds | food | agreements | legislation | tax planning | tax rates | import duty | dividends | tax reform | trade | triangulation | individual income tax | European Union (EU) | Europe | BEPS

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