The Financial Services Sector Prepares for Hard Brexit


 

Following Britain’s Brexit vote in 2016, we interviewed corporate tax solicitor, Charles Goddard, a partner at Rosetta Tax, for this blog post about the steps businesses should take to prepare for Brexit. 

Now, with Britain on track to leave the EU in just over a year, on March 29, 2019, we asked his partner at Rosetta Tax, VAT specialist Linda Adelson, about how businesses’ Brexit planning had progressed.

Adelson said that in the absence of any assurance that Britain will negotiate a special deal with the EU, “any business worth its salt is planning for a hard Brexit.”

For the financial services industry, in particular, the prospect of losing passporting privileges—the right to do business throughout the EU and the EEA under their UK licenses—has prompted many to begin moving, or planning to move, relevant parts of their European operations outside of London.

Such moves prompt a range of considerations, from a VAT standpoint alone, including:  

 

  • Whether the move can be made outside the scope of VAT under the “Transfer of Going Concern” rules.
  • Checking VAT registration requirements and liability rules in the new host jurisdiction. (For example, details of how exemptions are interpreted can vary between EU Member States); and
  • Potential loss of favourable UK VAT grouping rules.

With all these up front concerns, will Brexit bring any benefits to Britain’s financial services sector?

“I think there are always going to be some positives,” Adelson said. Benefits could include the opportunity to reform some problematic aspects of the current rules and “shaking free” of the administrative burdens of Intrastat reporting and EC sales lists. Furthermore, the UK could potentially overturn “unhelpful” CJEU case law through legislation—for example, the case of Minister Finansów v Aspiro SA (C-40/15, March 17, 2016), in which the CJEU ruled that claims settlement services provided by a third party on behalf of an insurance company are not VAT exempt—thereby imposing a non-recoverable cost on insurers.

Ultimately, said Adelson, the freedom to amend its VAT law without requiring consensus across 28 Member States could enable the UK to modernise and simplify legislation that is showing its age. For the time being, however, businesses were overwhelmingly frustrated at having to “plan for the worst” in the face of uncertainty.

 

By Joanna Norland, Technical Editor, Bloomberg Tax

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