As the pressure ramps up on both sides to find a way forward in Brexit negotiations the chances of there being “no deal” becomes ever more possible – but what are the implications of the two sides not being able to agree a post-Brexit trade deal?
The fall back option is likely to be the WTO option – meaning no preferential access to the EU or any of the markets which the EU has negotiated trade agreements with (currently 53). One of the key areas impacted by this will be food – with potentially substantial tariffs being imposed on imports and exports in and out of Europe.
Aside from the monetary cost of tariffs, many businesses will have to deal with Customs for the first time – this is likely to result in higher administrative costs and increased shipping times as goods await customs clearance. Couple that with HMRC’s concern that their new Customs Declaration Services computer system will take at least five years to set up and it is clear there is a risk of significant disruption to business supply chains.
More established businesses who have entities in Europe will also need to consider the impact of falling out of the EU Parent/Subsidiary Directive and Interest & Royalty Directive – meaning withholding taxes on dividends, royalties and interest will be determined by existing double tax agreements. The implication here is that withholding tax may no longer be completely eliminated and could become another cost to a business.
Businesses who trade with Europe and with those territories with whom the EU has negotiated trade agreements with should be reviewing the impact this will have on their business, undertaking scenario analysis to understand the implications of “no deal” and reviewing contracts and other legal documentation to understand who carries the risk of delays in the supply chain and who will bear increased admin costs.
Theresa May is to hold Brexit discussions with the president of the EU Council as the UK seeks to move talks on to a new trade deal.