Brexit may mean Brexit but it’s ultimately about tax

Chatting to business people in Belfast this week, it is evident that the consequences of Brexit are already being felt north of the border, and the consequences are not all bad.

Brexit may mean Brexit but it’s ultimately about tax

Once you pass Dundalk, Co Louth, you begin to see the signs for shops and businesses offering straight euro-for-pound sterling conversion.

Businesses are quite happy to give what is in effect a 10% discount on sales for the extra trade it brings.

The carparks in shopping centres in Newry, Co Down, are full, I’m told, with two southern registration plates for every one NI plate. And all this before the UK even formally begins to exit the EU.

British prime minister Theresa May might be right in stating that “Brexit means Brexit”, but whatever else it means, Brexit surely means tax.

From time immemorial, customs duties have been the mechanism used by countries to protect and defend the commercial interests of their own business sectors.

The UK leaving the EU single market means the reintroduction of customs duties, and that means imports to Ireland from the UK will become more expensive irrespective of the current softness of sterling.

While the UK government has signalled that the Brexit process will formally begin around March 2017, the UK will remain a full member of the EU until its exit process is concluded two years afterwards.

I met EU tax commissioner Pierre Moscovici in Strasbourg last week, mainly to discuss the new EU proposals for the cross-border taxation of companies, but inevitably the topic of Brexit was raised.

The commissioner was quite clear. There is nothing to discuss, at least not at the moment. While Mr Moscovici and his team will have lead responsibility on Brexit customs issues, he would not be drawn on any matter other than to say that he and his team were “making preparations”.

I don’t think there is too much sympathy for the UK position within any of the EU institutions at the moment. Nor does it seem that there is any great sympathy for any special future arrangements for Ireland by reason of our geographic and trading ties with our larger, departing, neighbour.

Money always talks, and within an EU context, customs duties speak a bit louder than many other taxes. This is because customs duties serve a twofold purpose. The first, which we’ve already noted, is to protect commercial interests.

The remaining members of the single market, post-Brexit, will want to ensure that their commercial interests are not damaged because one EU member state decided to leave the customs union.

However, the second purpose of customs, sometimes overlooked, may well be just as important. In most cases, EU countries retain the taxes they collect but customs is different. For every €100 in customs duty collected, €75 goes directly to Brussels to fund the European project. Only €25 goes to our exchequer as a sort of handler’s fee for going to the trouble of collecting it.

The more favourable any future customs deal between the UK and the EU, the less direct cash for Brussels.

We’re only at the start of feeling the Brexit impact. That’s why the Taoiseach is correct in resisting suggestions to create a Brexit minister.

The Brexit impact on Ireland will be felt across almost the entire range of cabinet responsibilities — finance certainly, but also enterprise, trade and employment, foreign affairs, transport, and education.

The shared and collective responsibility to deal with Brexit consequences will only become more urgent as time passes. For now, Brexit may even be suiting some of us — as evidenced by Newry carparks filled with southern registered cars.

However, that will change.

Brian Keegan is director of taxation with Chartered Accountants Ireland.

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