On September 13, 2018, the Taxation (Cross-border Trade) Bill received Royal Assent, formalizing its application into UK law as an Act of Parliament. This date marks less than one year since the Cross-border Trade Bill, also referred to as the “Customs Bill”, was first brought before the House of Commons. The initial scope of the Customs Bill, as well as the accompanying Trade Bill, was discussed in a previous blog post.
The Cross-border Trade Act is a key part of the UK’s wider effort to define its trade relationship with the EU and other non-EU member states following Brexit. The main purpose of the Act is to provide for a new UK customs regime ahead of Britain’s exit from the European Union, currently expected to take place on March 29, 2019. This Act, coupled with the Trade Bill (once it is formalized as an Act of Parliament), will provide the framework for the UK Government to enact further, specific legislation in the realm of customs and trade when the UK formally leaves the EU.
After Brexit, the EU Withdrawal Act (the “Great Repeal Bill”) will automatically convert a large portion of EU law into domestic law. However, certain sections of that Act have expressly excluded the automatic application of EU laws relating to VAT, excise and customs. Therefore, the Cross-border Trade Act and Trade Bill are necessary legislative instruments that will function in concert with the Withdrawal Act.
The Cross-border Trade Act and Trade Bill were designed to be flexible in light of the current uncertainty surrounding the ultimate deal which will be struck between the UK and EU. Specifically, the entry into force of certain parts of the Act takes place immediately while others sections enable the UK Government to implement future measures by way of regulations, anticipating the need for flexibility of timing and legislative scope (see Part 6, Section 57). As a result, these pieces of legislation have advanced independently of the UK’s ongoing exit negotiations with the EU.
Main Features of the Act
Parts 1 and 2 of the Act provide for a standalone customs regime. This means that the UK Government will, on implementation of the Act, have the authority to charge customs duties on goods imported into the UK, including those from EU member states. The Government will also have the authority to define its own categorization of imports and exports for customs purposes, and may further set its own tariff levels according to this categorization.
Part 3 of the Act provides for the abolition of the current “acquisition VAT” (which is applied across all EU member states) and permits the UK Government to levy an import value added tax (“VAT”) on all goods imported into the UK.
Excise duties are different from VAT, in that they are levied on the producer, rather than the purchaser at the point of sale. Part 4 of the Act provides for a separate excise duty system, enabling the UK Government to impose such duties on persons outside the UK, with respect to entry of goods into the UK via postal packet.
Tax collection on behalf of another country must be reciprocal
Section 54(1) of the Act prevents HMRC from collecting duties on behalf of other countries explicitly departing from the current EU model, setting out that “it shall be unlawful for HMRC to account for any duty of customs or VAT or excise duty collected by HMRC to the government of a country or territory outside the United Kingdom”. Nevertheless, subsection 2 removes that prohibition in circumstances where the UK has concluded a reciprocal agreement with the country or territory in question. As such, it is, in theory, possible for the UK to co-operate with the EU by way of a separate customs agreement.
Single UK Customs Territory
Section 55 emphasizes a “Single UK customs territory” and expressly excludes the possibility of Northern Ireland forming a separate customs territory to Great Britain.
Relationship with the Trade Bill
In addition to carving a roadmap for its tax and customs policies post-Brexit, the UK Government is also concurrently advancing legislation to set out the UK’s future trade framework by way of the Trade Bill. Provisions in that Bill are closely tied to provisions in the Cross-Border Trade Act.
The Trade Bill regulates non-tax aspects of the UK’s trade regime. It provides the UK Government with authority to effect transition of over 40 free trade agreements to which it is currently party by virtue of its membership in the EU.
The Trade Bill also provides for the creation of the Trade Remedies Authority (“TRA”), which will replace the European Commission as the agency responsible for assessing trade “threats” against the UK economy, as well as calculating and implementing associated trade remedies, i.e. import duties levied against “dumped” imports that threaten the domestic economy, for example, because they are imported at unfairly low prices or in unusually large quantities so as to competitively constrain the domestic economy. As with any other robust trade regime, trade remedies will form a vital part of the UK’s enforcement measures as they will enable the UK Government to launch direct actions on unfair trading practices.
Powers to levy these remedies are set out in both the Trade Bill, as well as the Cross-Border Trade Act, at sections 13 and 14 – these enable the future TRA and Secretary of State to investigate and decide on final remedies.
The Trade Bill had its second reading before the House of Lords on September 11, 2018. The Bill will now move to Committee stage in the House of Lords. The dates for this stage have not yet been set.
Impact of Recent Developments
In recent weeks, Prime Minister May’s “Chequers Plan” (the Government’s white paper on The Future Relationship between the United Kingdom and the European Union) has been subject to significant criticism from within the UK (from both Conservative and Labour parties), as well as from EU officials and heads of State.
In sum, the Chequers Plan proposes economic, security, institutional and other “cross‑cutting” cooperation arrangements between the UK and the EU. It seeks to preserve some of the benefits of the EU’s Single Market following Brexit: this includes establishing a free trade area for goods and a “facilitated customs arrangement”, akin to a combined customs territory and maintaining cooperation in energy, transport and civil/judicial matters. On the other hand, the Plan anticipates re-writing arrangements on services and in digital sectors (e.g., e-commerce), as well as ending free-movement of people between the UK and EU.
Domestically, this has been considered by politicians and stakeholders to be incongruent with a “hard Brexit” stance. The EU has also pushed back on the proposal, which has been viewed as detrimental to key principles of the EU due to “cherry-picking” the most favorable aspects of Union membership.
The UK government is now expected to propose an alternative arrangement imminently, ahead of the next round of Brexit negotiations on October 18 – 19 in Austria.
While ongoing negotiations will ultimately inform the concrete framework in which these two pieces of legislation will operate, the actual outcome and the final deal struck between the UK and EU does not affect the entry into force of either the Cross-border Trade Act (as explained above) or the forthcoming Trade Bill. Subject to official amendment or repeal, the UK Government will retain the powers accorded to it, regardless of whether a deal is in place by March 29, 2019.
The Cross-Border Trade Act lays important groundwork for the UK to swiftly launch into action once a trade agreement is reached. The overall structure and actual regulatory powers provided in this Act will be of great importance to businesses adjusting to post-Brexit trade arrangements between the EU and UK.