The Trade and Cooperation Agreement (TCA) signed by the UK and the EU in December 2020 contains a number of provisions which relate to tax. In this briefing, we look at what they are and how far they could constrain the UK's room for manoeuvre on tax issues in future. We also highlight a number of issues which are not addressed by the TCA, but are causing problems in practice – notably in relation to VAT and customs duties.
Overall, the most significant provisions of the TCA in terms of their impact on future UK tax policy are probably those relating to customs and export duties and state aid. However, the TCA also contains provisions relating to VAT, customs cooperation and international standards in tax policy. Each of these is considered separately below.
Customs and export duties
The TCA provides for zero tariffs on trade in qualifying goods between the UK and the EU. The critical words here are "qualifying goods"; goods which do not meet the rules of origin in the TCA will not qualify for preferential treatment. This is already causing difficulties in some sectors. For more detail on rules of origin, click here.
PROHIBITION OF EXPORT DUTIES
The TCA also prohibits duties being imposed on exports between the parties – for example, the UK cannot require a UK-based business to pay a tax triggered by the export of its goods to the EU (and vice versa). Such duties are sometimes imposed where a state wishes to deter businesses from engaging in export trade e.g. where a certain type of goods is in short supply and there is a desire to prioritise domestic customers. However, export duties are not as widely used as tariffs (which are imposed on imported goods) and where the UK had concerns about shortages, it could probably use non-tax measures (e.g. based on national security) to restrict or prohibit export (taking advantage of carve-outs in the TCA for this type of situation). As such, the UK is unlikely to find this prohibition particularly constraining in practice.