A catechism of cliché

Mar 04, 2019

Sunday Business Post, 3 March 2019 
One of the many unintended consequences of Brexit is its creation of a catechism of cliché.  A government must be “strong and stable”.  A backstop can only come in one flavour – Irish, even though the backstop is in fact British.  The Irish Government’s “Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019”, designed to keep the administrative show on the road should Britain leave the EU without a deal, is being described as a “mammoth bill”.  In fact the Bill, better known as the Brexit Omnibus Bill, which was published last week is not particularly big. 

We’ve seen something like it before.  The change of currency and the change of tax year at the start of this century prompted a similar flurry of bureaucratic legislation in the 2001 Finance Bill.  That year, along with the usual Budget rigmarole, the Finance Bill was used to change references to punts to references to new-fangled euros in the tax law.  It also changed the start of the tax year from 6 April to the more sensible date of 1 January. 

All of these ideas – changing the currency, moving the tax year, correcting for a no-deal Brexit - are easy to articulate.  But articulating them in such a way as to ensure the enforcement of the law of the land is a different matter.  Finance Act 2001 ran to 410 pages.  By comparison the Brexit Omnibus Bill is a 72 page weakling.  15 of those pages deal solely with tax.

Because of our shared membership of the EU, and therefore our shared participation in the freedom of movement of goods, capital, services and labour, almost every tax incentive and relief available in Ireland must also be made available across the European Union.  There are EU rules which prohibit one member country favouring its own citizens and businesses over those of another member country, and these too have a bearing on our tax law.  Post Brexit, some of the links in Irish tax law to Britain have to be fixed.

Just to take one example: the transfer of a farm on the death of its owner can attract a lower effective rate of inheritance tax for an Irish taxpayer.  But because of the way EU rules work, it doesn't matter whether the farm is located in Limerick or Lincolnshire, the tax relief still has to apply.  One of the considerations for the officials drafting the Omnibus Bill was to determine which tax reliefs currently available where EU assets and interests are concerned should continue to apply to British assets and interests.  Should a farm in Lincolnshire still qualify for Irish inheritance tax relief?

By and large, the Omnibus Bill is quite generous in this regard.  It ensures payments to Irish taxpayers from some British public compensation schemes remain exempt.  Irish employees of British entities will retain an opportunity for tax relief on their shareholdings.  Reliefs for seafarers will remain even if they are working on British registered ships.

On the other hand, anyone looking for new reliefs in the Omnibus Bill is going to be disappointed, but with one very important exception.  In the event of a no-deal Brexit, businesses importing from Britain will be able to deal with VAT on their purchases in just the same way as if Britain had not left the European Union. 

If anything, the surprising feature about the omnibus Brexit bill is that it is so short.  We spent over 40 years removing much of the bureaucracy in the way we deal with the other EU member countries.  Two years ago, the bureaucracy involved in dealing with Britain was added back in by the pencils of 17.4 million British voters in the Brexit referendum.  These 72 pages are designed to curb the worst excesses of that rediscovered bureaucracy.

Nor has our legislature sought to smooth our future relationship with Britain by allowing government ministers to fix things as they go along, as UK legislators have tended to do.  The main British legislation addressing the practical realities of Brexit is known as the EU Withdrawal Act and contains so-called Henry VIII clauses.  These confer great power on the British Minister of the day, with less recourse to Parliament. 

I am in the chorus of people hoping that the Irish Brexit Omnibus Bill will never have to be applied in practice, because a deal will be struck between Brussels and Westminster which will make its implementation unnecessary.  But even in that event I suspect the work in putting together the Omnibus Bill will not have been totally wasted.  No agreement on any EU/UK future relationship can be as comprehensive as the existing EU treaties, regulations and directives which govern the current relationship. 

There will be gaps to be filled in as we continue to deal with our nearest neighbours and most significant trading partners.  No matter what the final outcome of Brexit negotiations, there are elements of this Omnibus Bill which may have to be pressed into service at some future date.  After all, as the cliché goes, Brexit means Brexit.

 

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland