Brexit tax lessons for the Middle East

The Brexit process has more twists and turns than the Hampton Court Maze. Leaving the EU clearly has customs implications which is concerning many Brits. A replacement deal is desired in Britain to prevent their food being stuck on a truck at a customs post in Calais.

But the draft new EU-UK Brexit deal has floundered on something obvious to Americans and everyone else – you can’t have taxation without representation. That much was established at the Boston Tea Party of 1773. And yet in 2019, the UK Conservative government is telling its coalition colleagues in the Northern Irish Democratic Unionist Party (DUP) to wait four years before they can exercise any representation regarding the new EU-UK Brexit draft deal (Protocol on Ireland/Northern Ireland, published October 17). Don’t be fooled by the fact that representation is re-named as “democratic consent.”

What is this all about? What lessons can Israel learn from this very British fashlah (failure)?

The Irish problem

The original Irish problem goes back more than 800 years to 1167 when an Anglo-Norman conquest of Ireland occurred. After much ado, the Good Friday peace agreement was signed in 1998, promising an open border between the mainly Catholic Irish Republic (which gained independence in 1922) and mainly Protestant Northern Ireland, which remained part of the UK.

So long as the Irish Republic and the UK are both EU members, an open border is no problem. Now that the UK is leaving the EU and taking Northern Ireland with it, there is concern that the island of Ireland will become a smugglers’ paradise. Will goods (and immigrants) slip across the open border without customs duty? Will moonshine make a comeback?

The older Irish backstop proposal would have kept the UK (partly) and Northern Ireland (in particular) in some aspects of the European Single Market, until a solution could be found to prevent a hard border. This would come into operation only if there were no other solutions by the end of an unclear transition period.

Brexiteers found this too vague, hence the latest draft UK-Ireland Brexit deal.

The latest Brexit tax proposals

The latest EU-UK Brexit deal says that no customs duties shall be payable for a good brought into Northern Ireland from another part of the United Kingdom UNLESS that good is at risk of subsequently being moved into the EU, whether by itself or by forming part of another good following processing.

A good brought into Northern Ireland from outside the Union shall be considered to be at risk of subsequently being moved into the Union unless it is established that good:

Will not be subject to commercial processing in Northern Ireland; and Fulfills criteria to be established by a Joint Committee.

As for fish, the Joint Committee will establish rules to decide whether they are Northern Irish or Southern Irish fish!

As for VAT, the UK will apply certain EU rules concerning goods in respect of Northern Ireland and keep the VAT and excise duties.

Outcome:

At the time of writing, the UK Parliament is still debating the EU withdrawal bill and anything could happen. But the Northern Irish are unhappy at the additional procedures or taxes they may face on imported goods from the rest of the UK unless there is no risk of those goods being supplied onward to the Irish Republic.

Comments:

At the micro level, there will be challenges in tracking processing of goods and tracking e-commerce. Can Dubliners buy online and give a Belfast address to fool the system and avoid (or evade) customs duties? Will illicit warehouses spring up across the island of Ireland?

At the macro level, the UK is more than 2,000 miles away from Israel. And yet the Trump Middle East peace plan is around the corner. The Oslo peace process included the Paris agreement putting Israel and the Palestinian Authority into a sort of common market. Will the new Trump peace plan go that way? Are there lessons to be learned from the Brexit debacle?

One lesson might be that free trade is generally a good thing. Let the accountants and computers handle any pesky customs matters on routine periodic VAT returns.

Another lesson is that a well-informed democratic vote on each side may be advisable sooner rather than later.

And, fortunately, there are no fish in the River Jordan or Dead Sea... Readers are invited to send the undersigned your non-political comments.

As always, consult experienced tax advisers in each country at an early stage in specific cases. leon@h2cat.com

The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.