The Trade and Cooperation Agreement (TCA) between the EU and UK has been ratified and formally entered force on 1 May 2021. The Christmas Eve Agreement, which was provisionally applied since 21 January 2021, has given rise to some surprises and caused some confusion particularly for businesses in Ireland moving goods in and out of Great Britain. In this article, I look further at these issues, suggest ways to deal with customs administration as well as highlighting some areas outside of customs and trade that still require clarification.

The detail of the TCA

Trade in goods and certain services, energy, aviation and road transport, fisheries, social security coordination, law enforcement, digital trade and intellectual property are the main areas included in the TCA.

Decisions relating to equivalence for financial services, the adequacy of the UK’s data protection regime for the transfer of data or an assessment of the UK’s sanitary and phytosanitary regime are excluded. These three areas in particular are unilateral decisions of the EU and were not part of the negotiations.

A decision on the adequacy of the UK’s data protection regime is expected by 30 June 2021 and a memorandum of understanding has been drawn up which creates a platform via the Joint EU-UK Financial Regulatory Forum to discuss financial services issues in the future.

The TCA also does not govern trade in goods between Northern Ireland and the EU where the Protocol on Ireland and Northern Ireland applies. The Protocol brings new trading rules particularly in the areas of customs and VAT.

Trade in goods and customs

Despite a free trade agreement providing in many instances zero customs duties, customs paperwork could never be removed by what was agreed in the TCA. This has caused problems for traders moving goods in particular between Ireland and Great Britain. Goods shortages, delays at ports and problems with completing and filing customs declarations have all been reported as businesses and government authorities all get accustomed to the new requirements.

Since 1 January 2021, import and export declarations are required for goods entering Ireland from Great Britain and on goods leaving Ireland for Great Britain. These are made electronically using Revenue’s Automated Import System (AIS) for imports and through the Automated Entry Processing (AEP) system for exports.

Goods imported into Ireland from Great Britain require, among other things:

• an import declaration,
• an import safety and security declaration (an ENS) made to Revenue before the goods leave Great Britain,
• A Pre-Boarding Notification (PBN) to be submitted to Revenue before the goods leave Great Britain.

For exports to Great Britain from Ireland, the following are required:

• An export declaration
• An export safety and security declaration (ENS).

These customs declarations are tax declarations and need to be wholly accurate. Inaccurate returns can lead to delays, routing errors and customs interventions, thereby delaying the clearance of your goods. Declarations made can be viewed on ROS.

Tariff classification

Accurately assigning tariff classifications is the most critical aspect of completing import and export declarations. The correct tariff classification determines whether a good will qualify for zero duties under the TCA. It also determines if there are sanctions or impositions on a good or whether there are any licencing requirements. Penalties can arise if goods are not classified correctly so it’s important that companies take time to get this right.

Proof of Origin

Evidence of origin is key to ensure that traders can take advantage of “zero tariffs, zero quotas” free trade under the TCA. The chapter on rules of origin in the TCA is cumbersome and has caused difficulties for many businesses and has hampered supply chains.

Rules of origin determine the economic nationality of a product and where products ‘originate’ from is the fundamental basis for determining if tariffs apply or not. The TCA states that in order for products to benefit from zero tariffs and zero quotas, goods must be wholly obtained from or manufactured in the EU or UK or be substantially transformed or processed in the EU or UK in line with the specific origin rules that apply to the product being exported. Minor handling, unpacking and repacking won’t qualify as sufficiently processed. For goods not wholly grown, farmed, fished or mined in either the UK or EU, there could be tariffs.

There are differing limits depending on the product set on the value of non-originating materials (that is materials not originating in either the EU or UK) that can be used in order to benefit from the TCA.

The Annexes to the TCA set out the rule of origin applicable to products and identifying the tariff code is the starting point. Some products do allow a maximum level of non-originating content or a certain level of production but these percentage rules vary from product to product.

It’s important to retain evidence of the origin status or parts or raw materials that are purchased from EU or UK suppliers and evidence must be retained of percentage rules noted above.

It’s also important to remember that when goods are exported from a customs territory, origin status is lost (preferential origin status can only apply once). Take shoes originating in France for example. When the shoes move from France to Great Britain and are then shipped to Ireland, they lose their EU preferential origin status. Because they haven’t been processed or altered in Great Britain, they don’t have UK origin. Therefore, unless the goods move under a special customs procedure, duties arise on these goods entering Ireland.

VAT on imports from Great Britain

Under normal rules, VAT is due immediately on goods imported into Ireland from a non-EU country. However, a scheme to allow Postponed Accounting for VAT (PAV) on imports has been available to VAT-registered traders in Ireland since the end of the transition period. This scheme is intended to alleviate cash flow issues that could arise where VAT-registered businesses may otherwise have to pay import VAT when the goods are imported and then recover the VAT when the next VAT return is filed.

What does PAV do?

The scheme:

• postpones accounting for VAT on imports from non-EU countries (including Great Britain but not Northern Ireland),
• enables traders to account for import VAT on a VAT return rather than paying the VAT immediately on imports, and
• allows traders to reclaim VAT at the same time that it is self-accounted for on a VAT return (subject to the normal rules of deductibility).

Traders in Ireland who acquire goods from countries outside the EU’s VAT area can use the PAV arrangements. Traders who do not meet certain criteria may be excluded from the scheme. Criteria include compliance with tax and customs as well as viability of business operations and capacity to pay VAT liabilities.

Any trader who was registered for VAT and customs and excise at 11:00 pm on 31 December 2020 is automatically entitled to avail of PAV. VAT-registered traders who were not registered for customs and excise at 11.00 pm on 31 December 2020 must register for an EORI number. Once registered, these traders will automatically be entitled to avail of PAV. Different rules apply for new VAT applicants.

PAV was covered in detail in the January 2021 edition of tax.point. Revenue has produced a dedicated Tax and Duty Manual “VAT-Postponed Accounting” setting out more detail.

Business travel

Free movement of people between the EU and the UK ended as of 1 January 2021. Irish and UK citizens are still free to live, travel and work in either country under the rules of the Common Travel Area. Outside of this category of people, immigration requirements, including securing work permission and restrictions on activities that can be performed as business travellers, are now a key consideration for UK nationals moving throughout the rest of the EU, including UK citizens residing in Ireland, with similar policies in place for EU nationals seeking to travel to and work in the UK. The Agreement allows short-term business visitors to enter either jurisdiction visa-free for 90 days in any given six-month period but there are restrictions on the activities that can be performed.

Broadly, activities such as meetings, conferences, trade exhibitions, consultations are allowed, anything that involves selling goods or services directly to the public requires a work visa. Specific business situations where a visa is required are set out in the Annexes to the TCA.

Northern Ireland resident directors and Section 137 Companies Act 2014

Section 137 of the Companies Act 2014 requires an Irish-registered company to have at least one EEA-resident director, which until 31 December 2020 could include a UK (including a Northern Ireland) resident director. Many Irish companies fulfil this requirement by appointing a director resident in Northern Ireland. It is unclear whether Northern Ireland residents will meet the EEA test for the purposes of Section 137 and whether the TCA has any impact on this recognition.

Article SERVIN 2.5 of the TCA reads:

“A Party shall not require a covered enterprise to appoint individuals of any particular nationality as executives, managers or members of boards of directors.”

The CRO has not yet provided clarity on this issue and the Institute understands from correspondence with Tánaiste Leo Varadkar’s office that his Department has sought the legal opinion of the Office of the Attorney General and officials will be in contact with the CRO once the advice has been received and considered.

Section 137 does contain exemptions from this rule, namely where a bond is in place or a continuous link test is met. For many however, these exemptions are too costly or time consuming to implement.

Conclusion

There are other areas within the TCA that will affect readers which are outside the scope of this article. At the moment, implementing, applying and interpreting the TCA is the responsibility of a Partnership Council, a political body co-chaired by the EU and the UK. We will keep readers updated.

Cróna Clohisey is Public Policy Lead for Chartered Accountants Ireland