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Brexit

EU and UK agree the Brexit deal!

Aiki Kuldkepp
By:
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The EU and UK will trade without tariffs and quotas on all goods that comply with the rules of origin. No mutual recognition for qualifications of professionals. Services’ providers no longer benefit from the country-of-origin principle or mutual recognition.
Contents

Background

The EU/UK Trade and Cooperation Agreement (“deal”) was made just before the end of the Brexit transition period. The deal still needs to be formally approved by the UK and EU various institutions. It applies on a provisional basis until 28 February 2021.

At 12pm CET on 31 December, the UK left the EU Customs Union and Single Market. The free movement of goods persons, goods, services and capital between the UK and the EU ended. 

Trade with the UK: VAT and customs consequences of Brexit
Trade with the UK: VAT and customs consequences of Brexit
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The consequences of the deal are summarized as follows.

Border formalities/checks and paperwork

The trade with the GB (the UK excluding the NI) will be accompanied with customs’ borders, formalities and paperwork including entry and exit declarations. Imports will need to comply with EU/UK product rules and be subject to checks and controls for safety, health and other public policy purposes, including all necessary sanitary and phytosanitary (SPS) controls applicable between the EU and the UK. The deal includes separate regimes on  SPS border controls which regulates human, animal and plant health issues. This means dual regulatory regimes and additional costs as businesses have to comply with both regimes.

Without a deal, tariffs and quotas would have also been imposed on trade between the EU and UK.

Service providers will no longer benefit from the mutual recognition or ‘passporting principle’

For UK suppliers, this means complying with – often varying – host-country rules of each EU Member State (MS), or relocating to the EU MS if they want to continue operating as they do today. UK financial services firms will lose their financial services’ ‘passports’, however, both sides agree to try and reach an agreement on regulatory dialogue and stability around equivalence decisions in future.

The parties agree to allow short-term business visits (for example, for discussions on a contract for sale) as well as provision of services, subject to numerous restrictions. For example, independent professionals must possess a degree and six years’ experience to qualify for access, and some sectors still remain closed to them. They may still be required to apply for visas or work permits.

No mutual recognition of professional qualifications

The agreement sets up a framework for the mutual recognition of professional qualifications through the Partnership Council, but no new qualifications will be recognised on day one (the Brexit deal guarantees the mutual recognition for UK citizens already living in the EU before the end of the transition period, and vice versa).

Other highlights of the trade deal

No tariffs or quotas for goods originating in EU/UK

The trade deal (FTA) is 1,256 pages long. It provides for zero tariffs and zero quotas on all goods provided rules of origin (RoO) are met. Businesses are allowed to self-certify the origin of goods. Traders enjoy “full cumulation’ (i.e. processing activities in the EU or UK also count towards origin, not just materials used), making it easier to obtain EU/UK origin for the goods. Full bilateral cumulation between the EU and the UK allows EU inputs and processing to be counted as EU input in EU products exported to the UK and vice versa. The operators will benefit from additional flexibility in collecting documentary evidence to prove origin during the first year, to allow them to benefit from the preferences despite the little time available between conclusion and application of the FTA.

Other arrangements include:

  • facilitations on average pricing, accounting segregation for certain products, as well as all materials, and tolerance by value.
  • the mutual recognition of trusted traders programmes (‘AEO’).
  • common reference definition of international standards and possibility to self-declare conformity of low-risk products.

NI trade

The special rules will apply for trade in goods with the Northern Ireland (NI). NI will remain in the EU Single Market for goods. New checks on movements of goods will emerge between Great Britain (GB) and NI.

The UK revokes the clauses regarding NI of the controversial UK Internal Market Bill.

Brexit update: UK proposes the Internal market bill
Brexit update: UK proposes the Internal market bill
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Other important tax aspects of the deal

  • The administrative cooperation to ensure compliance with VAT legislation and in protecting VAT revenue and in recovering claims relating to taxes and duties.
  • It will enable UK and EU authorities to cooperate and exchange information relating to VAT, including for the purpose of combating VAT fraud.
  • Either Party can to make a (spontaneous) request of the other to recover unpaid customs duties, excise or VAT on its behalf.
  • The commitments on tax between the UK and the EU are also captured in a stand-alone Joint Political Declaration on Countering Harmful Tax Regimes.
  • There are no provisions constraining the UK/EU domestic tax regime or tax rates.

Some other highlights in the deal:

  • Customs co-operation and reduced bureaucracy at the borders compared to “third” countries.
  • No mutual recognition of testing and certification of UK and EU regulatory bodies. Businesses will have to seek potentially second certifications of goods.
  • The non-discrimination obligations of the Agreement ensure that service suppliers or investors from the EU will be treated no less favourably than UK operators in the UK, and vice-versa.
  • Temporary 'data adequacy' has been granted to the UK. There is a separate bridging agreement which will maintain personal data flows from EU to UK for up to six months until an adequacy decision is reached.
  • Creation of regulatory co-operation forums to avoid unnecessary future barriers to trade.
  • Enforceable non-regression commitments ensuring UK does not weaken existing rules on state aids, competition, labour and environment.
  • Differing rules on dispute settlement which do not exclude a possibility of retaliation in the case of a breach. This should be proportionate and subject to independent arbitration (not ECJ).
  • Limits on state aid for specific failing businesses or banks. The subsidy controls largely follow EU state aid rules.
  • Provisions facilitating the temporary movement of people and services’ suppliers
  • UK will take back 25% of the current UK waters fishing catch over a period of five years.
  • The UK loses access to the EU internal energy markets.
  • Provisions for asylum/returns reference, but much left to country-to-country bilateral talks.
  • UK will be consulted on future countries apply to join the EU; but no veto - which means UK cannot stop Scotland joining in the future.
  • Separate agreements on nuclear energy and security information

Contact

Do you have questions or do you need more detailed information? Please do not hesitate to contact us.