BREXIT - overview
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As of 'exit day' (11 pm on 31 January 2020), the UK ceased to be an EU member state and no longer participates in the political institutions and governance structures of the EU. However, in accordance with the transitional arrangements provided in Part 4 of the Withdrawal Agreement, 'exit day' marks the commencement of an 11-month implementation period (IP) during which the UK will continue to be treated by the EU as a member state for many purposes.
Under the current terms, the implementation period runs from 'exit day' until IP completion day (11 pm on 31 December 2020). During this period, the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements), and submit to the continuing jurisdiction of the Court of Justice of the European Union (CJEU) in accordance with the Withdrawal Agreement.
'Exit day' is still key in terms of being the date the UK ceased to be an EU member state, but in terms of the legal impact, IP completion day is the date that the majority of key domestic legal changes associated with Brexit will take effect, including the full repeal of the European Communities Act 1972, incorporation of retained EU law into the domestic legal regime and commencement of associated Brexit legislation, including Brexit SIs.
During the implementation period, the UK and EU are looking to reach an agreement on their future relationship in accordance with the framework set out in the Political Declaration, agreed alongside the Withdrawal Agreement (although not legally binding).
At the time of writing, the European Council was expected to grant the European Commission a mandate to commence negotiations on the future trade deal between the UK and the EU. On the UK side, the requirement for Parliament to sign off on the UK's negotiating position was removed by the European Union (Withdrawal Agreement) Act 2020 (EU(WA)A 2020), so there should be no hold-up from the UK side in that respect.
By the end of June 2020, the UK will need to decide whether it wishes to request an extension to the implementation period beyond 31 December 2020, as this would need to be agreed with the EU by 1 July 2020. It should be noted that EU(WA)A 2020 contains a provision amending European Union (Withdrawal) Act 2018 (EU(W)A 2018) to prohibit extension being agreed – in line with the Government's political commitments not to extend the implementation period. Although an extension may seem politically unlikely at this stage, Parliament has the power to remove the restriction, or Ministers could potentially sign up to an alternative extension which falls outside the terms of the restriction.
If no extension is agreed, the implementation period will come to an end on 31 December 2020. It is the UK Government's hope that a comprehensive trade deal will be in place by then but, if it is not, the default position is that Great Britain's trade with the EU will be governed by World Trade Organization rules, with some specific controls imposed on goods flowing between Northern Ireland and Great Britain in accordance with the Protocol on Ireland/Northern Ireland.
The potential impact on UK taxation will vary significantly depending on any exit route that is negotiated and agreed between the EU and the UK during the implementation period. However, aspects of UK tax that are likely to be most affected by Brexit include:
- cross-border VAT;
- cross-border mergers;
- customs duties;
- withholding taxes;
- capital duties;
- social security;
- state aid;
- implementation of the Anti-Tax Avoidance Directive (Directive 2016/1164);
- implementation of EU reporting rules for cross-border tax arrangements (Directive 2018/822, also known as DAC 6); and
- application of EU case law.
Important dates in the Brexit timeline include the following:
- 23 June 2016 UK referendum on membership of the EU
- 29 March 2017 UK triggers TEU Article 50 process, giving formal notification of the UK's intention to leave the EU
- 8 June 2017 UK Parliamentary General Election
- 19 June 2017 EU and UK begin negotiations on UK's withdrawal
- 26 June 2018 EU (Withdrawal) Act 2018 receives Royal Assent
- 13 September 2018 Taxation (Cross-border Trade) Act 2018 receives Royal Assent
- 14 November 2018 UK and EU announce agreement in principle on the Withdrawal Agreement
- 22 November 2018 UK and EU announce agreement in principle on the framework for the future relationship
- 15 January, 12 and 29 March 2019 House of Commons rejects Brexit deal
- 29 March 2019 Original 'exit day'
- 12 April 2019 Revised 'exit day'
- 31 October 2019 Further revised 'exit day'
- 12 December 2019 UK Parliamentary General Election
- 23 January 2020 European Union (Withdrawal Agreement) Act 2020 receives Royal Assent, giving effect to the Withdrawal Agreement in UK law
- 31 January 2020 (11 pm) 'Exit day' – UK leaves the EU and moves into implementation period
- 1 July 2020 Deadline for UK to request extension to implementation period
- 31 December 2020 (11 pm) 'IP completion day' (anticipated end of the implementation period)