Possible Consequences of Brexit in the Area of Indirect Taxation: Why Prime Minister May Talks about a Hard Brexit, but Really Needs a Soft Brexit!

The Brexit referendum of June 2016 gave rise to tremendous confusion in the United Kingdom, the European Union and internationally. In her subsequent presentations and White Papers, Prime Minister May appeared to be trying to calm the political waters at home by reassuring the people of Britain that “Brexit is Brexit” and that UK sovereignty and control of immigration would take precedence over trading with the European Union. The objective of this paper is to explain that, even though these statements may have served a domestic political purpose, a hard Brexit – under which the United Kingdom would become just a third country without any preferential economic relations with the European Union – would reintroduce significant trade obstacles that should not be taken lightly. This paper focuses in particular on the indirect tax obstacles for UK exports to the European Union, including customs duties and related procedures, the harmonized value added tax system and the loss of protection against indirect tax discrimination. The overall conclusion is that a hard Brexit will have a considerable cost for UK businesses and for the UK economy in general