Brexit transition proposal may affect Hungarian firms - Deloitte

Issues

According to the latest Brexit developments, while the United Kingdom is scheduled to leave the European Union on March 29, 2019, union rules on VAT, tariffs, and excise duty will remain in effect until December 31, 2020, an aspect which professional services firm Deloitte says may affect Hungarian firms.

"For Hungarian companies, it means that they could follow the current practices in the indirect taxation field until December 31, 2020," says Zoltán Gábor, senior manager at Deloitte Hungaryʼs Tax and Legal Services. "However, even in the transition period, the enforcement and authority practices will have to be monitored, in order to prevent surprises to the companies," he adds.

Points regarding tariffs and taxes have not changed significantly since the first draft agreement between the United Kingdom and the EU back in March 2018. According to the new developments, the transitional period may be extended once, and it has to be decided upon by July 1, 2020. Tax practice remains the same during the transitional period and Britain remains a part of the Customs Union and the Common Market, with the ability to access the needed networks, IT systems, and databases.

Brexit negotiations regarding tax and tariff cooperation are still ongoing, but the tariff declarations will be handled in the same way they are now during the transitional period, Deloitte says. Afterwards, if there is no agreement on further cooperation, the two parties will use a standby solution until a new one comes into effect. Such an agreement regarding the Republic of Ireland and Northern Ireland already exists, also containing a standby solution.

The standby plan would make the creation of an EU-U.K. tariff area possible, meaning no need for tariff fees, quotas, or origin checks between the two parties. Northern Ireland would follow the EUʼs tariff codex and conform more to the Common Market than the rest of Great Britain, according to Deloitte.

"While details are not available yet, it seems plausible that import and export declarations will be needed between the United Kingdom and the EU, while it wonʼt be necessary for Northern Ireland and Ireland," adds Attila Schütt, manager of Deloitte Hungaryʼs Tax and Legal Services. "In the press, many presume that any tariff union between the United Kingdom and the EU (either as a part of the standby plan or a part of a new commercial construction) would abolish import and export entry requirements. Turkey is currently in a tariff union with the EU, yet the import and export requirements are still there."

Deloitte says it is important to note that the above is correct and relevant if the agreement is accepted by the United Kingdom, not only the European Parliament. If this fails to happen, the United Kingdom will leave the EU on March 29, 2019, and will get the same treatment as other non-EU states.

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