Richard Asquith (Avalara) with some crystal ball gazing on EU-related issues.
Brexit: the risk of no deal, an early Budget and MTD deferral
The UK will reluctantly sign the negotiated EU Withdrawal Agreement. It will take two Parliamentary votes, but Labour and the DUP will fail to halt it given the terrifying prospect of crashing out of the UK’s largest market without trade and tariff agreements.
This will leave the UK within the VAT regime and tied to other fair tax policy scriptures of the EU until December 2020. There will likely be a further, transition period after this until the end of 2022.
However, in the event of a no deal exit, we can expect the Spring Statement from the chancellor to be upgraded to a full emergency budget with measures including:
increasing the planned corporation tax rate reduction from 17% down to 15% instead to establish the UK’s new low-tax global brand;
cutting temporarily the VAT rate to 17.5% to prop-up consumer sentiment;
roll-out of a deferred VAT accounting for importers, potentially at the expense of the MTD for VAT launch in April 2019; and
closing a number of reliefs to pay for these measures, including higher and additional rate pension relief and the entrepreneurs’ relief.
EU stalls on definitive VAT regime
Plans to introduce a destination-based EU-wide VAT regime to combat the €50bn VAT fraud issue will stall as member states baulk at the prospect of creating over €600bn in new cash payments which will be highly susceptible to fraud. In addition, states like Germany will be unwilling to surrender control of their tax collections to other states.
EU member states fragment on live invoice reporting
The lack of progress on the EU Action Plan will encourage more states to proceed with live VAT invoice reporting initiatives.
States such as Greece and Portugal will extend their new mandatory B2G regimes to include all B2B and B2C transactions, requiring real-time approval of sales invoices by the government.
The challenge for multinationals is being able to create systems able to cope consistently with the very varying requirements and formats.
EU fragments on digital services tax
Despite likely compromise offers on the EU’s proposed 3% DST, dissenting countries such as Ireland, Sweden and Denmark will continue to block its progression.
This will mean more states will join Spain and the UK with unilateral proposals, which will be varied in nature and thus creating complexity and potential rent-seeking by digital giants.
The Franco-German tax alliance may seek to use the enhanced cooperation mechanism of the EU to push something like the EU proposal through. This permits a minimum of nine member states to proceed with such multilateral measures through the institutions of the EU. A DST enhanced cooperation agreement could gain up to 20 participating states.
Pressure on marketplaces and VAT fraud
EU states and countries beyond will increasingly look to draw online marketplaces into the role of tax policeman to help cut third-party seller VAT fraud.
Germany’s marketing place VAT joint liability rules start in the Spring of 2019. These follow the UK’s successful initiative, but are far tougher on the online platforms in forcing them to hold proof of ongoing tax compliance.
With the EU looking to impose liabilities on the marketplaces in two years, expect many states in Asia to follow Europe’s lead.
Home >Articles > 2019 predictions as Brexit and MTD loom
2019 predictions as Brexit and MTD loom
Richard Asquith (Avalara) with some crystal ball gazing on EU-related issues.
Brexit: the risk of no deal, an early Budget and MTD deferral
The UK will reluctantly sign the negotiated EU Withdrawal Agreement. It will take two Parliamentary votes, but Labour and the DUP will fail to halt it given the terrifying prospect of crashing out of the UK’s largest market without trade and tariff agreements.
This will leave the UK within the VAT regime and tied to other fair tax policy scriptures of the EU until December 2020. There will likely be a further, transition period after this until the end of 2022.
However, in the event of a no deal exit, we can expect the Spring Statement from the chancellor to be upgraded to a full emergency budget with measures including:
increasing the planned corporation tax rate reduction from 17% down to 15% instead to establish the UK’s new low-tax global brand;
cutting temporarily the VAT rate to 17.5% to prop-up consumer sentiment;
roll-out of a deferred VAT accounting for importers, potentially at the expense of the MTD for VAT launch in April 2019; and
closing a number of reliefs to pay for these measures, including higher and additional rate pension relief and the entrepreneurs’ relief.
EU stalls on definitive VAT regime
Plans to introduce a destination-based EU-wide VAT regime to combat the €50bn VAT fraud issue will stall as member states baulk at the prospect of creating over €600bn in new cash payments which will be highly susceptible to fraud. In addition, states like Germany will be unwilling to surrender control of their tax collections to other states.
EU member states fragment on live invoice reporting
The lack of progress on the EU Action Plan will encourage more states to proceed with live VAT invoice reporting initiatives.
States such as Greece and Portugal will extend their new mandatory B2G regimes to include all B2B and B2C transactions, requiring real-time approval of sales invoices by the government.
The challenge for multinationals is being able to create systems able to cope consistently with the very varying requirements and formats.
EU fragments on digital services tax
Despite likely compromise offers on the EU’s proposed 3% DST, dissenting countries such as Ireland, Sweden and Denmark will continue to block its progression.
This will mean more states will join Spain and the UK with unilateral proposals, which will be varied in nature and thus creating complexity and potential rent-seeking by digital giants.
The Franco-German tax alliance may seek to use the enhanced cooperation mechanism of the EU to push something like the EU proposal through. This permits a minimum of nine member states to proceed with such multilateral measures through the institutions of the EU. A DST enhanced cooperation agreement could gain up to 20 participating states.
Pressure on marketplaces and VAT fraud
EU states and countries beyond will increasingly look to draw online marketplaces into the role of tax policeman to help cut third-party seller VAT fraud.
Germany’s marketing place VAT joint liability rules start in the Spring of 2019. These follow the UK’s successful initiative, but are far tougher on the online platforms in forcing them to hold proof of ongoing tax compliance.
With the EU looking to impose liabilities on the marketplaces in two years, expect many states in Asia to follow Europe’s lead.
