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Where Taxpayers and Advisers Meet
UK Businesses Beware: Contradictory Brexit Agreements Leave You at the Mercy of a 'Pick and Mix' Approach to Legal Precedent
29/01/2020, by RSM UK, Tax News - Business Tax
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RSM's Sarah Halsted considers the apparently conflicting powers - both to follow and to ignore - EU case law following Brexit.

The European Union (Withdrawal Agreement) Act 2020 (EUWA) received Royal Assent last week. It empowers the Government to give UK courts discretion to depart from existing EU case law after the end of the transition period. However, the earlier European Withdrawal Act 2018 gives the UK courts discretion to take account of EU court judgments issued after the end of the transition period. So where does this leave business?

The EUWA enacts the Government’s agreement with the EU on the terms of the UK’s exit from the EU. While much remains to be decided about the UK’s future relationship with the EU after Brexit, we now know that the UK will leave the EU on 31 January 2020. However, practical changes to VAT and customs processes will not take effect until the conclusion of the transition period, which is currently scheduled to end at 11pm on 31 December 2020.

Future Relationship

Although the withdrawal agreement with the EU allows for the transition period to be extended to the end of 2021 or 2022, the EUWA prohibits UK ministers from agreeing an extension beyond 31 December 2020. This does not give long for the UK and EU to agree their future relationship, including a trade deal, so businesses should continue to plan for a disruptive Brexit at the end of 2020. See details of the key planning points in VAT, customs duty and trade in a no-deal Brexit.

Case Law Precedent

It is also possible that the EUWA will change the UK’s expected approach to existing case law of the Court of Justice of the European Union (CJEU) after Brexit. The UK is currently required to follow CJEU case law when interpreting VAT and customs rules and, in the withdrawal agreement, agreed to be bound by CJEU judgments issued before the end of the transition period. The previous government stated that CJEU case law in existence at the end of the transition period would be given equivalent precedent status to UK Supreme Court case law after Brexit, meaning it could only be overridden by the Supreme Court in exceptional circumstances or if the UK government changed the underlying UK law.

However, the EUWA empowers the Government to give UK courts and tribunals discretion to depart from existing CJEU case law after the end of the transition period. The detail of such powers of discretion are to be set out in regulations, which must be published by 31 December 2020, so it is not yet known how much latitude the UK courts will have to ignore pre-Brexit decisions. However, depending on the extent of these powers, they could bring great uncertainty to a wide range of businesses, both cross-border and domestic, whose VAT and customs positions are underpinned by EU case law precedents.

It is also worth noting that the earlier European Withdrawal Act 2018 gives the UK courts discretion to take account of CJEU judgments issued after the end of the transition period. Far from 31 December 2020 being the cut off point for jurisdiction of the CJEU over VAT and customs matters, these provisions suggest that the Government intends to pick and choose which CJEU precedents it applies or ignores when dealing with VAT disputes after the end of the transition period.

Known Unknowns

All UK businesses should watch closely for further developments during 2020 – particularly around the potential override of long-standing European Court precedents, and keep up preparations for a disruptive departure on 31 December 2020.

About The Author

RSM is a leading audit, tax and consulting firm to the middle market with nearly 3,500 partners and staff operating from 35 locations throughout the UK. For the year ending 31 March 2017, RSM generated revenues of £319m. RSM UK is a member firm of RSM International - the sixth largest network of audit, tax and consulting firms globally. The network spans over 120 countries, 813 offices and more than 43,000 people, with a fee income of more than $5bn.


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