New arrangements as UK leaves single market and customs union

9 Jan 2021

The UK and EU agreed a Trade and Cooperation Agreement (TCA) on Christmas Eve. This was passed by the UK Parliament on 30 December and took effect at the end of the following day as the UK left the single market and customs union at the end of the Brexit transition period (also known as the implementation period). While the agreeing of a deal (even a fairly limited one) has been widely welcomed, the rushed process, requiring businesses to adopt new ways of working at a few days notice, has faced criticism.

Trade and Cooperation Agreement

The main provisions in the agreement relating to tax are that it commits both UK and EU to uphold global standards on tax transparency and fighting tax avoidance. It contains commitments to specific tax standards as they stand at the end of the transition period, including the international standards on exchange of information, anti-tax avoidance, as well as relevant standards in legislation on public country by country reporting by credit institutions and investment firms. 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. This is a political commitment to the principles of countering harmful tax regimes, and reflects the work done by the OECD in this area. There are no further provisions constraining the UK’s domestic tax regime or tax rates.

The Agreement commits the UK and EU to support international efforts to prevent and fight against money laundering and terrorist financing, exchange relevant information, and maintain comprehensive anti-money laundering and counter-terrorist financing regimes. It commits the UK and EU to maintain high standards of beneficial ownership transparency.

One specific impact is that the Government have announced that the EU directive known as DAC 6 (an EU version of DOTAS which applies to cross-border tax arrangements with hallmarks suggestive of tax avoidance) has partly, but not wholly, ceased to apply within the UK. CIOT issued a statement from our Vice President, Gary Ashford, observing that this showed the UK Government keen to take their own path in terms of their international tax compliance obligations. We said that the complexity of DAC 6 meant there would be many UK tax advisers pleased to see this change but noted that the UK would still be implementing parts of DAC 6 in relation to those who seek to circumvent CRS reporting, and also that the UK has its own rigorous rules on disclosure of tax arrangements and is seeking to strengthen, not weaken them.

Some MEPs are unhappy the UK is not more constrained. Green MEPs have written to the European Commission urging them to withhold legal permits allowing UK financial services companies easy access to the single market until Brussels gets tougher commitments from London to crack down on money laundering and tax avoidance. (More in the FT, 6 Jan.)

The UK is no longer part of the EU Emissions Trading Scheme. We considered replacing our membership with a carbon tax but in the end opted for a UK Emissions Trading Scheme.

On recognition of professional qualifications, the new agreement is a step back from the previous arrangements. There is no overarching system in place for UK-EU recognition for tax and accountancy so national rules apply. There is considerable diversity over these national rules and requirements. However the agreement offers a framework for the development of recommendations on mutual recognition.

Want to find out more about the tax and customs implications of the agreement? Tax Journal subscribers can do so at The EU/UK TCA: tax and customs by Timothy Lyons QC

Related new legislation

Legislation to establish the special VAT and customs regime that now apply in Northern Ireland completed its passage through the UK Parliament shortly before Christmas and is now the Taxation (Post-transition Period) Act 2020.

The passage of this bill followed that of the UK Internal Market Bill which concluded its parliamentary passage on 16 December and gained Royal Assent the following day. This Bill, now an Act, contains legislation required to ensure the UK internal market continues to function smoothly outside the EU. For example, it includes provision for market access principles of mutual recognition and non-discrimination for goods and services.

A report on debates on the Taxation (Post-transition Period) Bill, with more information on the Internal Market Bill, can be read here.

By George Crozier