EU-UK Trade and Co-operation Agreement (TCA)

On 24 December 2020, the Trade and Co-operation Agreement (TCA) between the European Union (EU) and United Kingdom (UK) was finalised. This ensured that the dreaded ‘no-deal’ outcome at the end of the transition period on 31 December 2020 was avoided. 

The TCA runs for 1,246 pages and there is much detail to consider. In broad terms however, business will welcome the conclusion of an agreement that provides for tariff-free, quota-free trading of goods between the two jurisdictions; nevertheless, there are a number of non-tariff barriers that will need to be managed while there are also a number of issues that are left unresolved.

Already, we have seen some teething problems involving the movement of goods between the two jurisdictions and we are perhaps fortunate that early January is generally a quiet month for trade and perhaps even more so this year with the various pandemic-related restrictions on business reducing demand. It is therefore important that business takes the opportunity to carefully review the terms of the TCA and takes the relevant actions in order to be prepared and to minimise disruption.

Positive features

The TCA contains a number of welcome measures, including:

• It provides for tariff-free, quota-free trade in goods between the EU and the UK. This is significant and goes further than any other trade agreement previously entered into by the EU. It is however subject to detailed ‘rules of origin’ provisions as discussed below, which it appears have caused some difficulties in the early weeks of 2021.
• It provides for continued access for road hauliers on either side so that haulage between the EU and UK can continue, as can the use of the ‘UK land bridge’ by Irish hauliers transporting to the continent. Furthermore, no permits are required to do so.
• Air transport of passengers and cargo can also continue between the UK and EU.
• In the area of services, it provides a range of broad commitments to no ‘behind the border trade barriers’ to the supply of services – for example economic needs tests, equity caps or nationality requirements for directors – and there will no requirement to establish a local presence in order to provide a service. Nevertheless, as discussed below, these commitments are subject to significant exceptions at individual Member State level.
• It provides for the mutual protection and enforcement of Intellectual Property rights.
• The current position regarding social security co-ordination and reciprocal healthcare arrangements is largely unchanged. Therefore, the rules regarding where social insurance is payable for employees seconded between the EU and UK remain unchanged for the most part; however, there may be some complications for non-Ireland/UK citizens moving between Ireland and the UK, as discussed in more detail below. Co-ordination of benefits (for example amalgamation of service in both jurisdictions for the purposes of establishing entitlement to pensions and other benefits) continues and people travelling between the UK and EU should be able to continue to access the public healthcare system in the jurisdiction they are visiting. 
• It contains a commitment that no work permits will be required for business visitors for up to 90 days in any six-month period for the purposes of business meetings, concluding contracts or attending conferences; it does not however cover cases where the purpose of the visit is the performance of a service.
• Contrary to expectations, it allows businesses in the EU to bid for UK government procurement contracts and vice-versa.
• Other than the measures previously introduced, including those pertinent to the Northern Ireland protocol it does not introduce any new measures in the areas of tax and VAT. With the conclusion of the deal, the Northern Ireland Protocol is respected so that there is no change in the VAT or Customs treatment of the trade of goods between north and south.

Shortfalls

The TCA however falls short in a number of areas, including:

• It contains a number of non-tariff barriers to trade in goods which effectively mean that while there may not be tariffs there is no longer free movement of goods between the EU and the UK. The main non-tariff barriers include:
  • The need to comply with detailed ‘rules of origin’ procedures. Essentially, the tariff-free, quota-free provisions outlined above will only apply to goods that originate in either the UK or the EU. This can complicate matters where there are a number of components in a product. Exporters and importers will need to review these requirements and to maintain the necessary documentation to support the treatment applied. Otherwise, tariffs may apply.
  • No mutual recognition of ‘conformity assessments’. Essentially, there will now be two separate regulatory regimes to consider for businesses trading in both the EU and the UK. The UK had hoped for mutual recognition so that for example the UK could certify if products met EU regulatory requirements and vice-versa, but this has not been agreed.
  • In particular, each jurisdiction will operate separate sanitary and phytosanitary (SPS) regimes (broadly meaning physical checks for the protection of human, animal and plant health) and no mutual recognition agreements have yet been reached. This will have a particular impact on agri-food businesses. 
• While haulage can continue between the EU and UK, road hauliers from one jurisdiction are restricted to two additional cabotage operations within the other jurisdiction. This may complicate certain supply chains.
• While it contains a number of general commitments in the area of services, as discussed above, on closer examination there is a large number of Member State reservations so that individual Member States can apply restrictions. Certain sectors, including for example the UK’s creative industries sector have fared particularly poorly. Furthermore, there will no longer be an automatic mutual recognition of professional qualifications, which may create difficulties where professional qualifications are required to provide a service.
• As noted above, where the service is being provided in person, a work permit may be required.
• It is especially quiet on the matter of financial services, which is a work-in-progress and subject to ongoing negotiations. This is especially disappointing as the UK has a large financial services sector.
• While the position regarding social security co-ordination is largely unchanged as discussed above, there may be complications for secondments that last beyond 24 months as the TCA does not include a provision for A1 coverage to be extended beyond that period. Separately, Ireland and the UK on 1 January 2021 entered into a new Social Security Bilateral Agreement which addresses this point but only for Irish and UK citizens moving between the jurisdictions. 
• The provisions around the ‘level playing field’ and ‘trade remedies’ are potentially problematic. It leaves it open to either side to take remedial action (for example tariffs) against imports which cause injury to domestic industry; furthermore, the ‘level playing field’ measures are such that these measures could be ‘cross-retaliatory’ in nature, impacting areas not directly related to where the breach occurred. Businesses could therefore be innocently caught in the crossfire.
• It is also not entirely clear how the ‘level playing field’ provisions, which incorporate State Aid provisions, restrict the UK from shaping tax policy in future. This may have implications for Ireland in the context of competing for inward investment.

Actions now required

Irish businesses that trade with the UK, and those that use the land bridge to transport goods to and from the continent, now need to review their operations and procedures carefully so that they are not negatively impacted post-Brexit. In particular:

• If they are trading goods between the EU and UK, ensure they have an EORI number which they will require for any interactions with customs authorities.
• They should familiarise themselves with the new VAT rules that apply to the trade of goods and services with Great Britain (GB) and to the trade of services with Northern Ireland. Also, review the fiscal and financial movement of their goods.
• For trade of goods between the EU and the UK, clarify who the importer of record is and agree with the customer the Incoterms that will apply.
• Consider applying for customs and VAT deferred payment accounts.
• Those that are exporting or importing goods to/from GB should familiarise themselves with customs procedures; the UK is phasing these in over a six-month period, but the EU have applied them since 1 January 2021.
• Those that are importing goods from GB should check that they meet the ‘rules of origin’ test to qualify for an exemption from tariffs.
• Those exporting goods to GB should classify their products, check the ‘rules of origin’ and maintain the relevant documentation.
• Impacted businesses should discuss the matter with their customs agents and instruct them accordingly.
• They should consider if obtaining advance rulings on product classifications or rules of origin may be worthwhile.
• Those that are selling goods in both GB and the EU need to familiarise themselves with two separate regulatory regimes.
• For an Irish business that uses a UK haulier, consider if that haulier performs multiple cabotage operations as, if they do, alternative arrangements may have to be made.
• For secondments of employees to and from the UK, consider carefully if the terms of the TCA and/or the new Bilateral Convention apply, in particular if the secondees are citizens of neither country and the secondment is likely to last for more than 24 months.

If your business needs any assistance with cross border trade, please contact a member of our tax team.