Brexit Update - September 2018
In this wide-ranging discussion, EisnerAmper’s Transfer Pricing Practice Leader Dr. Henric Adey gives us the latest on Brexit, including how the Irish border and the customs implications are currently at the center of the debate, the increasing likelihood of a hard Brexit, and what he’s advising clients in light of recent developments.
Dave Plaskow: Hello and welcome to EisnerAmper’s podcast series, where we try to dig a little deeper on accounting and finance issues facing business professionals and their clients. It’s time for another Brexit update. I’m your host Dave Plaskow and with us again to share his expertise is EisnerAmper’s Transfer Pricing Practice Leader, Dr. Henric Adey. Henric, since we last spoke at the end of 2017 a lot has happened regarding Brexit. Can you fill us in?
Henric Adey: Certainly Dave. Here are some of the recent key dates and events. On June 26, 2018, the Queen of England gave a Royal Assent to the European Union Withdrawal Act. That was quickly followed on July 9 by the resignation of Boris Johnson and David Davis as Britain’s Brexit Minister. Then, on July 24, 2018, Theresa May said she will lead the negotiations with the European Union but with a secretary of state for exiting the European Union on her behalf. So, then, there was the legislation which was amended to some parts of the EU withdrawal bill, which was passed last month after a series of very narrow votes, to ensure that the U.K. statute book continues to function during the 21-month transition period, and the new bill would also create sort of financial authority that would manage divorce payments which will total between £40 to £50 billion, which is quite a significant amount of money. And on July 26, Theresa May secured approval from the cabinet for a deal that would foresee the U.K./EU free trade area, and I think that’s important because the EU’s chief negotiator has ruled out allowing the U.K. to collect customs duties on its behalf – a key U.K. proposal for post-Brexit trade. So, a lot is going on, and we see a lot of worry for a no-deal position where also the U.K. has issued 25 documents of guidance of what would happen under a no-deal position.
DP: That’s a good synopsis of where we’ve been. So where are we going? What’s next? What are some of the key concerns given that a hard Brexit is becoming more and more likely?
HA: I think it’s become very apparent that Theresa May wants to lobby the EU leaders in September in Salzburg – at the Salzburg meeting – even though it has been made clear that only formal talks allowed by the chief negotiator, Michael Barnier, and so May is allowed to update EU leaders on her plans at the quarterly EU summits, but is not in the room for discussions. So, the Salzburg meeting is definitely the next key piece, and we have seen that the concerns are primarily around the Irish border dilemma, and the worry – it’s clearly marked in the markets and the falling pound as well, that a no-deal position is a reality given the very short time frame leading up to March of next year. The EU kind of wants to take the stance of a carrot and stick negotiation, trying to really firm-up its position about the Irish border and therefore making some trade concessions in the process. I think after the Salzburg gathering there’s going to be – within four weeks of that – an EU summit in Brussels, which will really, hopefully, allow Theresa May to strike a deal. I think the key concerns about the no deal are agriculture, in particular. We’ve sort of read in the newspaper about the U.K., you know, potentially stockpiling food because there’s a lot of agricultural trade between the EU and the U.K. – up to £45 billion worth of it – and then pharma is also a big concern where vital supplies of medications should be stockpiled for six week’s supply in case of that. I think really that the autumn-December period is going to be crucial to see what’s happening before we really can go to the sprint up to March of next year.
DP:Now you mention the Irish border and the customs implications are at the center of the debate. Expand on that if you could.
HA:Correct. On August 16, negotiators discussed the problems with the Irish border with the two sides deeply divided over how to avoid customs checks at the crossing, along with the U.K.’s future relationship with the EU, and I think there it is very key that there hasn’t really been a practical option on how to impose customs and tariffs at the Northern Ireland border, and there isn’t also a practical technology that could be employed that would allow us not to have a hard border there. The EU sees serious problems with the Chequers plan – the blueprint that was released by Theresa May – and has dismissed that the customs idea is pretty much unworkable. However, EU negotiators have not entirely written off May’s plan to see the kernel of a free trade agreement. But this outcome would fall short of the Prime Minister’s hopes for deeper economic ties with the EU.
DP:Given all these moving parts – and there are a lot of moving parts here – what are you specifically telling clients as we near March 29, 2019?
HA: I think the likelihood of a hard Brexit is increasingly happening, and we will see if negotiations this coming autumn can turn this around. We have already seen in the newspapers that many multinationals have already started to shift business operations and restructure their businesses, and that is to lessen the effect of a potential no-deal Brexit. That gives them more agility and hopefully allows them to have a softer landing depending on the outcome. As always, my advice is be prepared, plan ahead, and actively monitor your risk and exposure due to Brexit.
DP:Sure, because as we sit here in September 2018, a lot can happen between now and March 2019. So, Henric, thank you very much for unpacking all of this for our listeners – to be continued – we’ll continue to have these updates as we go along, and thanks again for your insight.
HA: Thank you.
DP:And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this, and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.