Deep Dive: Anticipating The Post-Brexit eCommerce Tax Landscape

Key international negotiations surrounding Brexit stand to reshape global eCommerce, including the kinds and amounts of taxes that online marketplaces will face.

Brexit has been generating headlines, questions and tensions ever since the June 2016 referendum, but a clear plan guiding the departure has yet to materialize. Even Brexit’s effective date remains up for debate, with Parliament recently passing a law requiring the U.K. to seek a departure extension if no deal is in place by Oct. 19.

Prime Minister Boris Johnson continues to insist that the U.K. will leave by Oct. 31 whether or not a deal is signed, however, leaving businesses to guess how they should prepare for any new tax compliance obligations that could be set in motion.

Tax Impact of a No-Deal Brexit

The U.K. might still manage to negotiate tax and tariff rates and rules with the European Union, but if no deal is reached, international trade between the former and the latter will be subject to the World Trade Organization’s rules, which implement tariffs ranging from 4 percent to 40 percent, depending on the products.

The changes could result in U.K. companies paying an additional 13 billion pounds ($17 billion) annually in customs declarations when exporting to the EU, while EU exporters would pay 20 billion pounds ($25 billion) on custom duties when selling to the U.K.

EU laws currently state that online purchases from suppliers outside the bloc are subject to VATs if their customs values — the combined value of all items in a shipment — are more than 22 euros ($24). Items are also subject to customs duties if their values are more than 150 euros ($166).

Observers anticipate that companies will incur expenses beyond the amount of the VATs and tariff payments. Businesses can expect new administrative costs associated with managing the reporting and reclamation of these taxes, and companies are working to train employees to prepare for these burdens. The U.K. tax authority predicted that British companies will bear several billion GBP a year in new administrative costs post-Brexit.

These new taxes would be enacted immediately if Britain leaves the EU without a deal, but should both parties reach an agreement, taxes will remain as they are until they transition to an agreed-upon system.

Ireland’s Customs, Tariffs Anticipations

The Republic of Ireland is also bracing for Brexit. The departure raises questions about how trade between Northern Ireland and the Republic of Ireland — which will remain in the EU — will be handled. The Republic of Ireland’s postal services provider, An Post, delivers approximately 14 million packages from the U.K., a number that will change post-Brexit. It is estimated that the Republic of Ireland would see the volume of customs declarations rise from 1.6 million to 20 million annually.

Garrett Bridgeman, An Post’s managing director of mails and parcels, said major British fashion and cosmetic eTailer ASOS, eCommerce marketplace giant Amazon and other companies are preparing for Brexit by developing a system that will adjust prices online to reflect Ireland’s VAT rate. The postal delivery person would provide consumers with customs dockets along with their packages and instructions on how to pay the taxes. Plans also call for services that would enable tax payments via text or email.

A rapid U.K. departure could be chaotic despite these preparations. Recent research from trade and business development body InterTradeIreland shows that just 6 percent of approximately 20,000 cross-border trade-conducting companies have examined the legal implications of a no-deal Brexit on their business contracts. The report also noted that added tariffs and taxes could threaten the survival of small and medium-sized businesses.

Businesses and governments alike must anticipate how shifts in the global tax landscape will affect them, and they must move quickly to handle these changes. Companies are also obligated to adjust their cash flow models to stay compliant with new tariffs and tax legislation.