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Future customs arrangements: the VAT aspects

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The UK government’s position paper on future customs arrangements, published on 15 August (, said: 
‘without any further facilitations or agreements, the UK would treat trade with the EU as it currently treats trade with non-EU countries. Customs duty and import VAT would be due on EU imports. Traders would need to be registered. Traders exporting to the EU would have to submit an export declaration, and certain goods may require an export licence. The EU would also apply the customs rules and VAT to imports from the UK that it applies to non-EU countries. The government is actively considering ways in which to mitigate the impacts of such a scenario. Other EU member states will also need to make contingency preparations to mitigate the risk of delays resulting from their own customs processes.’
I was expecting that the UK government would accept that, after Brexit, rather than having three geographical categories of supplies (domestic, domestic-EU and domestic-non EU), it would have two (domestic and domestic-non EU). That would mean import VAT at the border rather than acquisition VAT, but that was a clear consequence of leaving the EU and, one would presume in the minds of the 52% who carefully considered the arguments on both sides before deciding to vote Leave, an acceptable one.
In slightly vague terms, the UK government appears to be looking to get to the position where supplies between the UK and the EU27 are treated pretty much in the same way as they are right now. In other words, it does not want imports from the EU27 to give rise to a payment of import VAT at the border. This is consistent with the policy position that:
  • ultimately no one on either side really wants to gum up movement of goods at Dover and Calais;
  • the current VAT system works quite well for trade within the EU (and no one really voted to leave the EU because they objected to acquisition VAT); and 
  • the imposition of import VAT would be yet another real problem for Northern Ireland and its border with Ireland.
The problem is that, assuming the EU27 are prepared to amend Directive 2006/112/EC to provide for this, which is a big assumption, I think it’s likely that two other things will also follow:
  • the UK will have to ensure that its VAT rules remain consistent with Directive 2006/112/EC; and
  • the CJEU (or perhaps the EFTA court) will retain some sort of sovereignty over the UK’s VAT rules.
Politically, I could see that having continuing European sovereignty over the UK’s tax rules (tampon tax, anyone?) could be a problem for the UK government. If, as many think, the UK wants to use its post-Brexit ‘control’ to narrow its VAT base even further, it may not be allowed to do so under a deal with the EU27 to avoid the imposition of import VAT.
Let us see whether the UK pursues this positon and how the EU responds. If not favourably, the UK government had better start building some warehouses around our ports, smartish.