UK EXIT FROM THE EUROPEAN UNION (so-called “Brexit”)
Main effects – Transitional regime
On 29.1.2020, the European Parliament ratified the text of the United Kingdom’s withdrawal agreement from the European Union (“Brexit”). The essential elements of the agreement are represented:
- the provision for a transitional period from 1.2.2020 to 31.12.2020, during which the provisions of the European Union remain in force with regard to the United Kingdom, as if that State were still a Member State;
- the effective exit of the United Kingdom from the customs and tax territory of the European Union, starting from 1.1.2021
EFFECTS AT THE END OF THE TRANSITIONAL PERIOD – VAT
Starting from 1.1.2021, unless a specific agreement, the United Kingdom will be considered as third countries and, therefore, the main effects on VAT will be as follows:
- supplies and acquisitions of goods between Italy and UK will no longer qualify as intra-EU transactions, but they will be considered as export (for goods dispatched from Italy to the UK) and as import (when goods from the UK are introduced into Italy);
- it will not be possible to benefit of the simplifications provided for:
- Community triangular transactions,
- distance sales (which require registration for VAT purposes in the Member State of consumption only if certain turnover thresholds are exceeded),
- the transfer of movable property to another Member State for processing, expert appraisals (in such cases the customs rules on inward and outward processing may be applicable), to provide a service, etc;
- For the provision of generic services referred to in Art. 7-ter of Presidential Decree 633/72, the formal obligations vary:
- for services rendered, it must be indicated that the operation is “not subject” and no longer that the reverse charge/reverse charge applies;
- about services received, instead, the Italian customer will be required to apply the reverse charge mechanism by issuing a self-invoice. In any case, it will be not valid the obligation of Intrastat form.
By the end of the transitional period, however, the European Union and the United Kingdom will be able to establish clear and more advantageous rules for goods entering, leaving or transiting through the customs and tax territory of the European Union and the United Kingdom
On the other hand, the rules of Directive 2010/24/EU on mutual assistance for the recovery of tax claims (both VAT and other taxes) continue to be effective for a further 5 years after the end of the transitional period.
EFFECTS FOR INCOME TAX PURPOSES
Unless otherwise agreed, from 1.1.2021 the United Kingdom will be a fully-fledged non-EU State for income tax purposes.
The following benefits will cease to apply:
- exemption from withholding tax on dividends in intra-group relations (Directive 90/435/EC);
- exemption from withholding tax on interest and royalties in intra-group transactions (Directive 2003/49/EC);
- the favourable regime for M&A intra-Community transactions;
- the procedures for the automatic exchange of data on financial assets and related income provided for in Directive 2011/16/EC; the exchange, however, will continue (with very similar procedures) by virtue of the United Kingdom’s accession to the Multilateral Convention on Mutual Assistance for Tax Purposes (a worldwide, non-EU instrument).
FREEDOM OF ESTABLISHMENT AND FINANCIAL SERVICES
At the end of the transition period, the legislation relating to Extra-EU country will apply to UK entities operating in the territory of the European Union and, therefore, also in Italy.
In the same way, in the absence of different agreements, European Union entities (including Italian entities) operating in the United Kingdom will be subject to the regulations governing Extra-EU activities.
LDP remains at your disposal for any further information or in-depth study of the above topics.