The tax consequences of Brexit on international trade

BREXIT: since January 1st 2021, all the rules set by the recent agreement entered into force. We explain here some of them, applicable to the import and export of goods and services as well as the new principles of taxation of dividends distributed between French and British companies.

 

THE TAX CONSEQUENCES OF BREXIT ON INTERNATIONAL TRADE

15/01/2021

The effective divorce between the European Union and the United Kingdom that occurred on December 31st 2020 at midnight was already effective since January 31st 2020, the start of the transition period. However, it is from January 1st 2021 that all the rules set by the recent agreement enter into force.

We present below some rules applicable to the import and export of goods and services as well as the new principles of taxation of dividends distributed between French and British companies.


I - PURCHASES OF GOODS, SERVICE AND VAT

  1. Purchases of goods

Since the United Kingdom left the European Union, European companies no longer carry out intra-Community acquisitions or sales, but imports/exports from or to a third country.

Unlike intra-community operations, import and export operations require the filing of specific declarations with the customs administration and indirect duties at the time of import or export of goods.

  • On exportation, the exemption from the tax must be justified in accordance with the provisions of Article 74 of Annex III to the General Tax Code.

  • On importation, the tax must be calculated in accordance with the provisions of Article 292 of the General Tax Code and paid to the public treasury.

However, companies can obtain authorization to “autoloquide” VAT on importation provided they have already made at least 4 imports during the previous year.

  1. Services

The United Kingdom also becomes a third country with regard to services, and thus the taxation rules provided for in Articles 259 to 259C of the General Tax Code must be observed.

These articles consider the methods of taxation within the framework of the general regime then of the derogatory regimes according to the service rendered. They also take into account the country where the service is located and the taxable status or not of the service provider and the beneficiary.

For example, we will observe the rules provided for in article 259C relating to the following services:

  • Transport of goods or passengers,

  • Expertise or work on movable properties,

  • Services provided by intermediaries,

  • Short-term transport rentals,

  • Services connected with immovable property,

  • Cultural, artistic, sporting services, etc. as well as trade fairs,

  • Sales to consume on site,

  • Unique service from travel agencies,

  • Electronic services.

French VAT is applied when the service provider is located in France and the beneficiary is British (not subject to VAT).

Otherwise (British service provider and French customer), VAT will be now due in France only if the service is used in France.

 

II - BREXIT AND CUSTOMS

As of January 1st 2021, customs formalities will have to be completed during any trade with the United Kingdom. It is no longer necessary to complete the declaration of exchange of goods or services (D.E.B. or D.E.S.) but to file a customs declaration. This 54-box declaration can be completed either by a customs clearance professional or by the company. It must be lodged with the customs office where the goods are presented:

  • Either when the goods are presented to customs,
  • Either within 30 days preceding the presentation of the goods to customs.

As a result, companies importing or exporting goods from or to the UK should prepare now by taking a few steps:

  • Obtain an EORI number: to trade with a third country, it is necessary to have a community identifier, also called an EORI number (Economic Operator Registration and Identification). In France, the EORI number follows the structure of the SIRET number preceded by FR.
    This number can be obtained on the website https://douane.gouv.fr.

  • Decide who will complete customs formalities: if the company wishes to carry out customs clearance formalities itself, it must enter into an agreement with customs in order to be able to submit its declarations in the online customs clearance tool “DELTA”, accessible at https://douane.gouv.fr.
    Otherwise the company will have to use the services of a "registered customs representative" (R.D.E.).

  • Check that the goods you want to import are not subject to specific regulations: if this is the case, you will need to request a specific authorization.

  • Prepare for export customs clearance: goods exported to the UK must undergo export formalities at a customs office known as the "export office" as well as exit formalities at the European Union "customs office of exit".

It is possible to benefit from an export VAT exemption under certain conditions. It is then necessary to be able to justify the physical exit of the goods from the customs territory of the European Union. ECS is used for this. This is a European system which makes it possible to justify the exit of goods from the customs territory of the European Union regardless of the place where the export declaration formalities were carried out (in France or in another Member State).

  • Anticipate import customs clearance: it is possible to lodge an advance declaration in the “DELTA G customs clearance system” within 30 days of the physical arrival of the goods in the EU. Advance customs clearance makes it possible to ease customs formalities and therefore speed up the passage of goods.

 

III - BREXIT AND DIVIDENDS

  1. Payment of dividends by a UK company to its French parent company

The French parent company receiving income from a British subsidiary will not be deprived of the benefit of the exemption regime for these dividends as a result of Brexit. However, the share of costs and charges (which remains included in the profit of the company benefiting from the exempt participation income) is calculated at the reduced rate of 1% when the distributing subsidiary is subject to a tax equivalent to the tax on companies in a Member State of the European Union and that it fulfills, with the company which receives this distribution, the conditions which would allow them to be a member of the same tax group if this subsidiary were established in France. Consequently, the income received during the financial years beginning after December 31st 2020, at the rate of an eligible participation in the parent-daughter scheme from subsidiaries established in the United Kingdom will give rise to the application of a share of fees and charges calculated at the rate of 5%.

  1. Dividends paid by a French company to a British company and withholding tax

British companies can no longer benefit from the exemption from withholding tax on dividends from French sources provided for particularly under the condition of a minimum holding threshold of 10% or 5%.

When the dividends are paid by a French company to a British company which owns, directly or indirectly, less than 10% of the capital of the French company, the rate of withholding tax may not exceed 15% in application of the agreement tax between France and the United Kingdom of June 19th 2008. When the dividends are paid by a French company to a British company holding, directly or indirectly, at least 10% of the capital of the French company, no withholding tax will be due in France in application of said agreement.

Business managers still ask themselves many questions that we have not dealt with in this article. You can contact us if you want to clarify another issue related to Brexit.