On 10 December 2020 the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2020 (or the Brexit Omnibus Act 2020) was signed into law by the president.
The Act seeks to preserve continuing access to certain priority services, benefits and reliefs relating to the UK that might otherwise be denied when the Brexit Transition Period ended on 31 December 2020. It is understood that it will apply notwithstanding the Trade and Cooperation Agreement agreed between the EU and the UK on 24 December 2020.
A range of reliefs for arrangements previously dependent on the UK’s EU status are preserved for individuals including the artist’s exemption, charitable donations, third level student fees, UK authorised health insurers, the taxation of certain pension products, seafarers’ and fishers’ allowances, sportspersons reliefs, disposals of certain assets and investments, mortgage interest relief and certain compensation payments.
EU equivalent treatment is afforded to certain bodies such as stock exchanges, stock clearing intermediaries and other bodies to allow continuing access to Irish reliefs dependent on EU status, e.g. exemption from stamp duty for UK clearing houses.
Preservation of Capital Acquisitions Tax (CAT) agricultural relief to UK property and certain capital gains tax (CGT) reliefs, e.g. UK investments can be taken into account in calculating reliefs for venture capital fund managers, continuation of the 7 year CGT exemption on certain disposals of UK land.
Shares in UK companies / held by a UK trust can continue to be eligible for certain reliefs in respect of share schemes, e.g. in relation to clog shares and the Key Employee Engagement Programme (KEEP).
A number of corporation tax reliefs are preserved, including group tax loss eligibility for Irish branches of UK companies, continued reliefs for certain charges on income, continued exclusion from scope of close companies’ measures for loans to UK participators as well as continued eligibility of UK R&D activities in determining the amount of qualifying expenditure for the R&D tax credit.
Continued application of a range of reliefs for corporate reconstructions and amalgamations.
The introduction of postponed VAT accounting which will result, subject to certain conditions, in VAT due on importation of goods from the UK and other non-EU countries no longer being payable at the time of import for VAT registered persons but instead at the time of submission of the importer’s VAT return.
For importers with full VAT recovery, no payment of import VAT should arise where the relief is applied. The application of the relief is not mandatory but if applied at import and VAT is not appropriately included in the relevant VAT return there can be severe penalties so it will be important to ensure the relief is operated correctly.
Additional requirements, such as compliance with the customs legislation and tax rules, are being introduced to the VAT56 authorisation scheme, which allows a zero rate of VAT to apply to the purchase of certain good and services by Irish VAT registered businesses.
The VAT Retail Export Scheme is being amended such that UK based travellers may only avail of the scheme in respect of purchases of €75 or above.
Under the Protocol on Ireland / Northern Ireland, EU VAT law governing goods, but not services, and EU excise law applies to and in Northern Ireland from the end of the Brexit Transition Period. The Act amends Irish VAT & excise legislation where necessary to include Northern Ireland in the definition of EU Member State or European Union as appropriate.
Settlement finality: Temporary preservation of certainty in settling a range of transactions in shares, securities and other financial instruments including mutual recognition and access to existing clearance systems in line with EU contingency measures. This will apply for a period of 18 months after the Transition Period for UK Central Counterparties (CCPs) and until 30 June 2021 in the case of UK Central Securities Depositories (CSDs).
Insurance contract continuity: Measures to ensure Irish policy holders continue to benefit from insurance contracts underwritten by UK insurers for at least 15 years even if they are no longer permitted to conduct new EU business.
A number of insurance sector tax changes related to preserving the ability to impose levies on various insurance premia.
Maintaining commitments derived from the Common Travel Area (CTA) including access to emergency, routine and planned healthcare.
Preserve eligibility for individuals with full eligibility for public healthcare, access to necessary healthcare during a temporary stay, reciprocal access to healthcare not available in the other State and healthcare reimbursement arrangements as well as ability to raise charges for UK healthcare costs.
Enables the continuation of grant and other supports for Irish students studying in the UK and UK students studying in Ireland, subject to ministerial discretion.
Preserve recognition of UK social security contributions in line with commitments derived from the CTA. These extend to cover entitlements to a range of social welfare benefits including pensions.
Protect employee wage related rights in the event of insolvency of a UK employer. Amend a range of technical provisions related to immigration clarifying the rights of British passport holders in Ireland. While passport checks within the CTA are not required, on a practical level passports are checked to ensure that someone has the right to enter the CTA. including to ensure no passport checks in the CTA.
From 1 January 2021, the UK is no longer an EU Member State which will have implications for social security coverage. The Act ensures that the 2019 Convention on Social Security between Ireland and the UK can continue to apply. The Convention ensures continuity of the Common Travel Area social protection arrangements as well as providing for contribution arrangements for UK and Irish citizens who work across Ireland and the UK.
The 2019 Convention on Social Security between Ireland and the UK came into effect on 31 December 2020.
Recognition of a range of operators and qualifications to preserve cross border operation of bus and coach passenger services.
A number of important taxation matters will change as a result of the UK’s departure from the EU and are not covered in the Omnibus Act. Some of these are summarised on this page, together with advice on intragroup payments from other countries to the UK.
Taxation of Corporate Groups
The Act does not generally seek to preserve reliefs that are based in EU law, either Directives or decisions of the European Court of Justice. As such a number of important provisions will no longer apply in respect of transactions involving the UK. These include, but are not limited to, the EU Parent Subsidiary and Interest & Royalties Directives, the EU Mergers Directive, certain tax credits, including notional credits, for taxes paid in the UK, e.g. under schedule 24, paragraph 9I of the Taxes Consolidation Act 1997.
In some instances, Irish tax legislation provides similar reliefs to double tax treaty residents, e.g. withholding taxes on dividends and interest and therefore the impact may be minimal, subject to certain conditions.
Financial Services Taxation
A number of important reliefs / tax treatments in the financial services sector that are dependent upon EU Directives or the EU residence status of counterparties have not been preserved in the Act. These include, but are not limited to, provisions relating to the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive, the Alternative Investment Fund Managers Directive (AIFMD) and the tax treatment of Irish Real Estate Investment Trusts (REITs).
A number of reliefs from restrictions on interest deductions on “specified mortgages” in section 110, Taxes Consolidation Act 1997 may no longer apply. For example, there are exclusions from the restrictions where the securitisation is put in place by an EU/EEA credit/financial institution or such an institution outside of the EEA which is recognised by the EC as “equivalent”. In addition, there are reliefs where the profit participating interest is paid to EU/EEA pension funds, or to EU/EEA residents which carry on genuine economic activities.
A complex series of reliefs apply in respect of Irish Real Estate Investment Fund (IREF) withholding tax measures introduced originally as part of Finance Act 2016. Typically, reliefs are confined to EEA equivalents of Irish pension funds, Personal Retirement Savings Accounts (PRSAs), investment undertakings and life assurance companies, etc. that are not Personal Portfolio IREFs. Where such investor entities are resident in the UK, they will no longer satisfy the necessary conditions.
UK branches and Irish life assurance companies operating on a freedom of services basis will need to have non-resident declarations from UK resident policyholders in order to be able to avail of the exclusion of gains on chargeable events.
The UK will no longer be party to EU information exchange regimes, e.g. Country by Country Reporting, the exchange of financial account information, EU Mandatory Disclosure, etc. As noted here, the UK will continue to require reporting of arrangements falling under Hallmark D of the EU’s Mandatory Disclosure Regime. It is understood that this is on the basis that the UK considers that it has committed to the mandatory disclosure of such arrangements at OECD level. As the UK will continue to be part of OECD exchange mechanisms there should be largely no impact on the exchange of most other information, e.g. Country by Country Reporting.
In many EU countries (including but not limited to Germany, Luxembourg, Portugal and Italy) relief from withholding taxes on interest, royalties or dividends is improved by EU directives, e.g. the Parent-Subsidiary directive. Payments from entities in such countries to UK resident entities from 1 January 2021 may be subject to withholding taxes (possibly at a relatively low rate if a double tax treaty applies).
Some countries have taken steps to address these issues at a national level. For example, the UK and Austria have recently agreed conditions under which withholding tax will be relieved on dividends.
Businesses should assess now (if they have not done so already) whether this will impact them and whether they can take steps to mitigate any impact
If you have any queries on how Brexit will affect your business, please get in touch with our dedicated Brexit Response Team.