Tax experts have urged companies that ship goods from the United Kingdom to Northern Ireland to postpone any plans they may have to reorganize their supply chains in the wake of the NI Protocol Bill.
Following the UK government's publication of the Northern Ireland Protocol Bill on June 13, tax directors have urged suppliers of goods from Great Britain to Northern Ireland to postpone reorganizing their supply chains.
The Northern Ireland Protocol, which established guidelines for the treatment of NI after the UK left the EU, would be nullified by the bill, giving the Conservative government the authority to do so.
According to Richard Asquith, CEO of VAT Calc, a UK-based company that performs global VAT/GST reporting and calculations, "just pause, don't go ahead and restructure your supply chains, if you're going to."
According to him, developments over the summer may have an impact on the Northern Ireland Protocol and may eliminate the need for suppliers to restructure or reconsider their business plans. These might include legal actions brought by the EU and challenges to legislation brought in the House of Lords, the upper chamber of Parliament.
Politicians and some companies that ship goods from the UK to Northern Ireland have expressed concerns about the agreement's effects.
These complaints have mainly come from companies who are unhappy with the amount of paperwork, checks, and rules that businesses must follow when exporting goods to Northern Ireland.
As a result, some companies have chosen to use suppliers from the Republic of Ireland rather than Great Britain in an effort to avoid the red tape.
There is no denying that the decline in UK-EU trade has been beneficial for suppliers based in the Republic of Ireland. However, there is even less reason to doubt that politics, not commerce, is what led to the current conflict.
Brexit was always going to create barriers for companies that had spent 30 years moving products from the UK into EU markets without a lot of red tape, according to Brad Ashton, customs and international trade partner at RSM UK, a tax and audit consultancy in the UK.
“Businesses have extended their delivery times into the EU now simply because of the vagaries of being caught up in a queue to clear goods through customs,” according to Ashton.
The initial NI Protocol served primarily as a fast track to a Brexit resolution. The treatment of goods moving between Northern Ireland and their entry into the EU over the border with the Republic of Ireland was one of the issues for negotiators.
Making sure that any agreement did not go against the Good Friday peace accord was a crucial factor to take into account.
The protocol between the UK and EU has remained a source of contention and, to some extent, a bellwether for UK-EU relations despite the signing of the document.
According to Asquith, the current NI Protocol is "wonderful" in terms of regulations, customs, and VAT.
He claims that, “it creates a wonderful platform for both UK and non-UK businesses … to continue to use Northern Ireland post-Brexit,”
According to the protocol, NI adheres to the EU VAT system. The ability to bring goods into NI and distribute them into the EU via the Republic of Ireland or the UK also enables importers from outside the EU to profit from access to both VAT regimes.
The bill would grant the UK the authority to replace the EU VAT regime with a UK scheme, and it would require NI to adhere to rates set by Westminster.
The protocol and VAT and excise duty disputes are also examined, as are customs inspections for UK goods entering Northern Ireland, whether UK goods comply with EU regulations after entering the single market, and the role of the Court of Justice of the EU (CJEU).
The UK government wants to do away with checks on companies sending products from the UK to Northern Ireland, but not on products going to the EU. For goods headed for the NI and the EU, separate green and red lanes would be in effect. Businesses could then decide whether to comply with EU or UK product regulations.
The bill also suggests establishing an independent tribunal system to adjudicate trade disputes in place of the CJEU.
The bill appears to be primarily driven by political considerations rather than economic ones, according to a tax expert at a multinational luxury goods company in London.
“This is a politically driven decision as opposed to a fiscal measure. It has no precedent as far as I am aware, and its consequences for the relationship with the EU cannot be measured,” he continued.
Some tax directors have expressed skepticism regarding the measure's political motivations and its likelihood of becoming domestic law.
The tax expert at a global luxury goods company in London warns that “with domestic and Conservative politics being what they are right now the measure may not get through.”
The House of Lords, which is Parliament's upper chamber, and the CJEU, or alternatively an independent arbitration tribunal, will be the main obstacles to the bill's passage.
Additionally, it is anticipated that the EU will resume its legal action against the UK, which it had suspended in September 2021. Additionally, it will add two additional legal actions against the government for failing to set up border checkpoints and fail to share information with the European Commission.
According to Asquith, the most important lesson for tax directors who might be a little worried about the potential effects of the proposed legislation is to remain calm and refrain from reorganizing supply chains.
"If you don’t like the protocol, be patient and sit on your hands because it might change."
Tax directors, like everyone else, will be closely monitoring the bill's progress regardless of what happens.
By fLEXI tEAM