The Group’s Brexit Readiness – Taxation and Customs Issues report, published recently, points out that under the present Brexit agreement, post transition, the UK (excluding Northern Ireland) will be considered a “third country” for the purposes of Excise duty and VAT.
“In the absence of any action on behalf of the UK and Ireland, Duty Free sales would emerge between the UK and Ireland due to the UK’s status as a ‘third country ’post transition,” states the report.
“This has the potential to significantly affect the Government’s Exchequer figures. As matters stand, a duty-free regime for UK/Ireland travel will create significant tax administration difficulties and compliance costs, will reduce indirect tax revenues and will have a negative and distorting impact on the retail sector in Ireland given the frequency of air/sea passenger movements involved.”
This will apply not just in relation to excise products, but also in relation to retail trade in other high value items eg jewellery, cosmetics, IT devices.
However, the report adds that a legislative measure was included in section 63 of the 2019 Brexit Omnibus Act which provided for an option to restrict duty-free sales, in relation to excise duty, in the case of passenger travel between Ireland and the UK.
“The measure provided that excise duty would apply to alcohol and tobacco products sold in tax-free shops in Ireland to passengers travelling to the UK, post Brexit,” states the report, “The policy intention was to commence the measure in the event that the UK decided to restrict the scope of duty-free sales on excise products (alcohol and tobacco products) on a reciprocal basis.”
The proposed legislation allows Ireland the option of ensuring that excise is payable, where applicable, on duty-free products for travellers, leaving Ireland, going to the UK (not including Northern Ireland).
“When the transition period ends the UK will assume the status of a ‘third country’ in terms of their trading relationship with the European Union,” a spokesman for the Department of Finance told Drinks Industry Ireland, “In the absence of any action on behalf of the UK and Ireland, Duty Free sales would emerge between the UK and Ireland due to the UK’s status as a ‘third country” post transition.
“The Brexit Preparedness – Taxation and Customs Issues Tax Strategy Group paper sets out a possible scenario around duty-free post transition. Were the UK to decide not to introduce duty-free sales for passengers travelling to the EU post-transition, the approach to date has been to look to reciprocate the actions of the UK. In reality, this meant that we could only legislate to apply excise duty on alcohol and tobacco products, as the EU VAT directives provide that no VAT is payable on Duty Free products to Third Countries, subject to quantitative limits, explained the spokesman.
“The UK has announced recently that duty-free will apply between the UK and the EU post-transition.
“However, the Irish Government has yet to announce its position in this regard.”