A recent Tax Journal article looks at the potential effect of Brexit on the UK VAT system.
The UK has formally voted to leave the EU, and the Government has since confirmed that ‘Brexit means Brexit’. However, there remains significant uncertainty regarding what the UK’s relationship with the EU will look like after formal withdrawal takes place.
Whilst nobody has a crystal ball and the consequences of Brexit are not yet clear, there will no doubt be political considerations that will drive the negotiations. The UK Government’s objective must be to ensure that the UK remains competitive (or indeed becomes more competitive) in a post-Brexit world, with VAT being only one of a number of considerations. Taxation is clearly a key differentiator for countries but there are a raft of other fundamental issues, such as ensuring that the UK financial services sector is not hampered by not being able to passport through Europe and the obvious issues around international trade.
The UK VAT strategy cannot be decided until the Brexit model is known. For instance, it is possible that there could be an agreement with the EU for single market access, whereby certain EU laws such as VAT remain in force or are tinkered with to a minimal extent. A recent article for Tax Journal*, co-authored by KPMG in the UK’s Richard Iferenta, assumes that there is no such agreement reached in respect of VAT. On that basis, it considers what changes Brexit may or may not bring to the interpretation of the UK’s VAT legislation; what will happen to preliminary references to the CJEU up until the point at which the UK formally leaves the EU; and specific VAT issues the UK would be expected to address post-Brexit.
*First published in Tax Journal on 14 October 2016. Reproduced with permission.