December 22, 2017
In this December 2017 update, EisnerAmper’s Transfer Pricing Practice Leader Dr. Henric Adey brings us up to speed on where we are in the process. Henric discusses what the key issues are at this juncture, how close Britain and the EU are on each issue, and what he’s advising clients.
DP:So bring us up to speed on Brexit since we last spoke, I think it was June of 2017.
HA:Of course. We saw last Friday, December the 8th, that the UK and the European Union finally reached an agreement on the Brexit divorce terms after six months of tense talks, which gave them the opportunity to finally open up negotiations to advance on a trade deal, but leaving big challenges still ahead. The deal eases pressure on Theresa May, or eases the pressure on Theresa May, but it still needs to be approved this week by both sides and only really as a door opener to difficult negotiations. So leading up to last Friday, we saw a number of significant takeaways from weeks of turmoil that prevented Theresa May from unlocking the second phase of the Brexit talks about the future terms of trade between the UK and the European Union.
DP:What are the key issues on the table?
HA:I think the key issues are still Britain does not know what Brexit means. I think that’s really central at this point. The government has not really assessed the economic impact, and there’s no clear path forward so the next couple of weeks will be very crucial to really kind of develop some path forward.
DP:And what are each other’s position on the key issues?
HA:When we talk about that Britain does not know what Brexit means, I think we have to say Britain must decide whether it wants to negotiate continued easy access to the EU markets or accept significant barriers to trade. Both scenarios come with economic risks and political consequences that are bound to upset factions within May’s own party. Settling on a preferred course of action has been made more difficult by the fact that her cabinet, which has different views on what the end stage should be, has yet to debate on these issues.
HA:And then, the government has not really assessed the economic impact. Britain’s top Brexit negotiator, David Davis, said a while ago that his department has not studied how leaving the EU would affect specific sectors of the economy. Davis said that his department had studied the size and scope of the industries, but not tried to assess how their performance would be affected by Brexit.
DP:And on a clear path forward?
HA:May failed earlier last week to move Brexit negations to the critical issue and future trading arrangements, and I think one of the clear issues here was the barriers that should not return to Ireland and Northern Ireland after Brexit. The deal was scuttled after Northern Ireland’s Democratic Unionist Party, which props up May’s minority government, objected. So now that there is a little bit of opening room and again we’re trying to avoid these hard orders between Ireland and Northern Ireland, I think there might be a way forward.
DP:Now on these three points that you just went over pretty thoroughly, how close are both sides to an agreement on these points?
HA:That’s the key. Even though the UK and the European Union have reached an agreement on the Brexit divorce terms after six months, many key issues still remain and need to be negotiated. So for example, the divorce bill – and we know that Britain sort of accepted a higher settlement term, I think it’s around £30 billion that they set aside – the rights of EU citizens that live and work in Britain as well as still as the Irish issue with regards to a hard border, I still have this key points that need to be worked out and must be settled to the satisfaction of the 27 remaining EU members.
DP:Now bringing this down to a micro level as far as what you do on a day to day basis, how does that impact the advice that you’re giving your clients?
HA:I think, as always, be prepared and be ready. As we’ve seen, a lot of multinationals within Britain have already started to move employees, have started to look at restructuring some of their European operations and have even put in place an emergency Brexit plan that kind of gives them the ability to relocate key functions and look at their overall way of how they do business in Europe. This also holds true for their tax planning and they need to move their tax planning in line with the functions and assets that they have in Europe. So talk to your trusted advisor on how to do this best, and be prepared for the key scenarios to unfold as the Brexit negotiations go forward.
DP:To be continued. Henric, thanks for your expertise and this great insight.
HA:Thank you Dave.
DP:And we’ll update you periodically on Brexit developments, so stayed tuned. 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.