The Taxation (Cross-border Trade) Bill and trading under WTO rules



The Taxation (Cross-border Trade) Bill was introduced in the House of Commons on 20 November 2017. It will have to be passed by both Houses before it becomes law, and, as with other key pieces of Brexit legislation, including the Trade Bill, it has to become law before Brexit takes effect, currently set for 29 March 2019.

Why is it necessary?

The authority to charge customs duty is currently contained in the European Communities Act 1972, which will be repealed by the European Union (Withdrawal) Bill (EUWB). As an EU Member State, the UK is currently a member of the EU's Customs Union. Within the EU's Customs Union, goods move freely between Member States and are not subject to customs duty, quotas or customs processes (including the need to provide customs declarations). EU Member States also apply the EU’s Common External Tariff (the same rates of customs duty per type of goods at all EU external borders) and common quotas and customs processes to imports from outside the EU.

The EUWB will convert the body of existing EU law into domestic law, which will become known as "retained EU law". The powers in the EUWB to implement the withdrawal agreement cannot be used to impose or increase taxation, which includes customs duties, excise or VAT. Therefore, the UK will need new primary legislation, irrespective of any agreements reached between the UK and EU, to create a standalone customs duty regime. In addition, it will need to amend the primary legislation on VAT (principally, the Value Added Tax Act 1994) and amend the excise regimes so that they can function effectively after the UK has left the EU.


The Bill does not presuppose any particular outcome from the UK’s negotiations with the EU. In addition to legislating for a contingency scenario where the UK leaves the EU without a negotiated outcome, the Bill also provides for a range of negotiated outcomes, including a transitional period in which UK trade policy is closely aligned with the EU.

i. A stand-alone customs regime

The Bill provides for the Government to:

  • Impose customs duties and require customs declarations for goods entering the UK; establish new UK tariffs; set quotas; classify goods for customs purposes; set up special customs procedures; impose export duties in certain situations; and allow agents to act on behalf of the importer etc
  • Apply preferential rates to imports from certain territories under future free trade agreements, and impose preferential tariffs unilaterally for goods from developing countries
  • Implement trade remedies in the form of increased customs duties at the recommendation of the Trade Remedies Authority (to be established under the Trade Bill)
  • Enter into a customs union with other countries and territories

ii. VAT

The VAT regime in the UK is governed to a large extent by EU Regulations (which have direct effect) and EU Directives which have been implemented into UK primary law and regulations. One of the concepts in the Principal VAT Directive 2006 is the concept of "acquisition VAT". "Acquisitions" are the supply and movement of goods between businesses from one EU Member State to another. VAT is paid on acquisitions in a VAT return, rather than at the point of entry of the goods into an EU Member State.

Since acquisitions relate to the intra-EU movements of goods, once the UK leaves the EU, the concept of acquisitions is no longer appropriate for the movement of goods between the UK and EU. The Bill therefore provides that the concept of "acquisition VAT" will be abolished, and "import VAT", which currently applies on goods entering the UK from outside the EU, will instead be payable by businesses on all imports from outside the UK as a condition of clearing customs. This would be recoverable on general VAT principles by taxable businesses but only in the next VAT return. This is a significant change for businesses used to acquisition VAT procedures, and could cause cash-flow difficulties. Other changes to the current rules will see the UK leave the Mini One Stop Shop regime for electronic and telecoms services supplied intra-EU, and the end of EU Sales Lists, reforming intra-EU trade.

iii. Excise duty

Elements of the UK's excise duty regime legislation implement EU Directives on the charging of excise duty on tobacco, alcohol and oil products, and provide for the "duty suspension regime" under which excise duty is only charged on goods in the EU Member State where the goods will be consumed. The Bill provides for a scenario in which the UK leaves the EU with no agreement in place on excise duty, so that the UK's excise regime may continue to operate effectively post-Brexit. Businesses importing and exporting products such as alcohol, tobacco and oil products may face increased regulatory burdens and associated costs as a result of no longer being able to use the harmonised processes afforded by the EU's Excise Movement Control System (EMCS).

iv. Transitional period

The Bill contains provisions to enable the Government to enact measures to permit the continued application of EU law during a transitional period after 29 March 2019. The hope is that that the UK's future trade deal with the EU will be negotiated during this time, that businesses only have to adapt to one set of changes, and that they are afforded the time to do so. As such, the Bill contains various provisions which aim to ensure that the customs and taxation environments remain as close as possible to the status quo both during any transitional period and, to a lesser extent, upon a no-deal scenario of a reversion of UK-EU trade to World Trade Organisation (WTO) rules.

The no deal scenario - what does falling back on WTO rules with the EU actually mean?

If the UK withdraws from the EU without any agreement in place, its trading relationship with the EU will be governed by rules laid down by the WTO.


The WTO is the only global international organisation dealing with the rules of trade between nations. At its heart are the WTO agreements. The current agreements (or rules) were the outcome of the 1986–94 Uruguay Round negotiations which included a major revision of the original General Agreement on Tariffs and Trade (GATT). GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also created new rules for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy reviews. The complete set runs to some 30,000 pages consisting of about 30 agreements and separate commitments (called schedules) made by individual members in specific areas such as lower customs duty rates and services market-opening.

Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and their obligations. Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.

Main implications for business

The main implications are as follows:

  • A key principle of the WTO, the "most favoured nation principle", is that countries do not discriminate against one another. So if the UK does not have a trade agreement with the EU, the EU will have to treat the UK in the same way that it treats all other WTO members in that position, such as Russia, the US or Brazil. This means that EU tariffs would have to apply to goods imported from the UK. It would in fact be illegal under WTO rules for the EU not to place tariffs on UK goods in these circumstances, but, say, to place them on similar goods from other countries without a trade deal with the EU. It is possible to calculate the tariff impact of importing UK goods into the EU
  • Similarly, the most favoured nation principle will apply to the UK. The Government has said that it plans to adopt the EU's tariffs for trade with the rest of the world, which has provided early clarity for EU businesses importing goods into the UK, and means they can calculate the tariff impacts of trading with the UK under WTO rules
  • Where goods originate is determined using ‘rules of origin’, which lay out the minimum requirements for a product to be considered “originating” from the export country. Such requirements typically limit the third-country material to be used in the production of a product or require a minimal level of economic activity to transform goods with third-country products into goods originating from the export country. So, simply because goods are considered to originate from one territory does not mean that another territory will consider them also to have originated there
  • Services are far less liberalised than goods under the WTO services agreement, the General Agreement on Trade in Services (GATS), meaning that the WTO rules in place are far fewer than for goods. Exporters of services have to rely far more on the domestic rules of the destination country to understand their rights of market access rather than non-discriminatory, global commitments made under the auspices of the WTO


The Taxation (Cross-border Trade) Bill could make significant changes to cross-border UK-EU trade after Brexit; the extent of the changes depends on the content of the withdrawal agreement. Businesses would be well advised to follow the enactment of the Bill, monitor the secondary legislation made under it, and prepare for the impact of these changes in time for Brexit day.

It is, however, possible that the UK and EU will not be able to agree a withdrawal agreement, which means that the UK and EU will trade under WTO rules post-Brexit, certainly until a bilateral trade agreement is negotiated and enters into force. The effects of this are significant for importers and exporters of goods to and from the UK. Businesses involved in UK-EU trade alone will have to comply with customs requirements for the first time, including the payment of customs duties where levied, completion of customs declarations, submission to customs checks at the UK and EU borders, as well as with rules of origin requirements and import VAT. This will no doubt have an impact on the timelines and costs of supply chains, and ultimately could have an impact on profitability.

DLA Piper's trade team helps businesses carry out Brexit impact assessments on their supply chains and export markets, including tariff calculations. DLA Piper's tax team provides international and cross-border tax and VAT advice, as well as all transfer pricing services on supply chains involving related entities. For further information, please contact John Forrest, UK Head of Global Trade and Government Affairs, Richard Woolich, UK Head of Tax, or Paul Hardy, Brexit Director.