While the future of the UK and European Union (EU) trade relations may still be unclear, telecommunications firms should be preparing for the departure of the UK from the EU in March 2019. Upon leaving the EU Customs Union, the UK will either have a free-trade agreement with the EU or trade between the two jurisdictions will be governed by World Trade Organization (WTO) rules. This change will have tax-related implications for all importers and exporters.
Telecom equipment and other firms in the industry that face low or no duties have reasoned that the direct duty impact from a hard border will probably be minimal. While this outcome is likely, direct financial cost is not the only area of concern — there are many other ways that Brexit could present unwelcome challenges for telecom enterprises across the business, including within indirect tax.
Disrupted supply chains
Telecom firms need to be prepared for supply-chain disruption. Failure to prepare and address risks now could result in significant issues once the UK leaves the EU.
A slowdown in the movement of goods across borders after Brexit would have many repercussions:
- Impact timely access to components, including vital spare parts needed to maintain network access, affecting business continuity and the brand, as well as the company’s ability to meet regulatory requirements
- Slow research and development and, ultimately, innovation within a business
- Put the business at a competitive disadvantage if the latest smartphone is out of stock because of delays at the border — unlike models of rivals
Administrative burdens for customs declarations and other trade-related documents are set to significantly increase. Many companies assume their suppliers or freight forwarders will be responsible for the paperwork for imported goods, but this may not be the case. If the telecom company is the importer of record, it will be responsible for the paperwork for goods entering the UK.
The surging administrative burden could put a strain on resources of both businesses and tax administrations and lead to higher costs. HMRC, for example, estimates that customs declarations will rise to almost fourfold post-Brexit, to 300 million a year. Compounding the problem is the UK’s outdated IT system for customs declarations, known as CHIEF, which is already struggling with the 76 million import-export declarations currently filed each year.
Telecom companies should consider other tax-related consequences. In the UK, firms are preparing huge investments in the next generation of mobile networks. Trials of 5G networks are scheduled to begin during 2018 and launch in 2020. In light of these investments, businesses should consider how Brexit and changes in the supply chain could affect cash flow, including VAT refunds.
New regulations could also affect indirect taxes. The UK communications regulator, Ofcom, may no longer be obliged to implement EU directives, including those that cap roaming charges for EU citizens. As a result, UK operators may want to charge (and tax) Britons more for calls abroad, and EU operators could change pricing for EU citizens visiting the UK.
Preparing for Brexit
Telecom companies must consider the following key action points:
- Plan to avoid disruption: Telecom companies and their suppliers need to examine current arrangements and plan how best to avoid disruption post-Brexit. Solutions could involve changing ports, changing sourcing, changing suppliers, changing lead times, stockpiling and hiring more customs-specialized personnel.
- Seek AEO status: Those with potential customs challenges should seek Authorized Economic Operator (AEO) supply-chain security status with HMRC without delay. The current lead time for AEO status is now 12 months and is likely to get longer. “Trusted traders” skip to the front of the queue (though your trucks may not).
- Do your homework: Make sure your documentation uses the International Commercial Terms (Incoterms) terminology of the International Chamber of Commerce and find out the right Harmonized System (HS) classification codes for your goods used by customs authorities.
Read full article here.
EY legal services contacts:
Pav Younis – Leader International Brexit Team Law
Richard Goold – Technology, Media and Telecommunications (TMT) Sector Leader – Law