By Jean-François Clocheau
– Creator of DAGTVA –
Former title: Why the actual European Single Market is already « dead »
In my precedent article, the 4 October, I would show, in the context of Brexit, a new European Single Market, more strong, more efficient, where the VAT not transit inside the transactions due the split payment*. This solution will be probably implemented by the UK in April 2019 or January 2021 or between these dates to reply at the goals of EU and OECD. This should be inside a new FTA where parts engaged in the Brexit will be the all winners in the future European Single Market environment.
*(Avalara : You can read about the split payment model, which arrives quickly from USA by the marketplace providers to collect sales tax, details in this article by Gail Cole – 30 October 2018).
But before this, I will have to start by explaining the causes of the « death » of the actual European Single Market, then replaced by the new and write this article before the first.
In the Brexit negotiations, in fact there are different negotiations.
1) The negotiation about the UK withdrawal of EU.
2) The negotiation of the future relations between UK and EU after the Brexit.
And outside but in parallel:
3) The negotiation between the Irish Republic and UK to obtain an bilateral agreement named in the Chequers Plan “a combined customs territory” (agreement mandatory for several reasons, I detail below).
Before it seem for me important to have present in the mind, for the two first items, that it is not a negotiation between UK and EU, but a negotiation between UK and the representatives of Member States of EU. Mr Barnier and his Staff have received, through the Council, a mandate from the EU Member States to achieve this mission. It is not the same thing! Even if there is one only EU negotiator, the EU act in dispersed order.
Why it is not the EU which not to drives the negotiations for the European Union?
When I have created DAGTVA in 2011/2012, I felt my duty to send this new tax system at the Head Office of the European Taxation and I receive, very quickly, this laconic reply on seven lines below!
I quote: “As you probably know, respective European legislation is based on the VAT Directive (Council Directive 2006/112/EC of 28 November 2006 and its modifying acts). Each Member State is responsible for the implementation of this Directive into their national legislations and application on their territories. Due to the fundamental principle of subsidiarity, the Commission is not in a position to promote a uniform technical solution to be imposed on Member States for the purposes of implementing this legislation, as you appear to suggest.”
With this short answer, we have the real power level of the European Brexit negotiators’! Each Member State can do whatever it wants in this frame of taxation and it is not the problem of the European Union to know how a tax is levied in a Member State. This is the function of the local legislator in each of the 27 European and UK parliaments. Nothing can be implemented before these ratifications. It would be difficult to see how these parliaments could return and vote to economic brakes with borders and taxes. By consequences, it is the presence or not of the taxation which define the borders between the countries! Fortunately, for the free movement of goods and people, nobody wants to see customs officers again.
With these constatations, it is very difficult now for Mr Barnier and its Staff to impose a system with borders and taxations between these Member States and the UK and to see, at the same moment, where there is no tax between UK and two countries, IR and Spain. Consequences, the negotiations in this domain are already lost for the European negotiators to have a consensus for a new European Single Market in these conditions.
It is simply to see the bilateral negotiations between the Irish Republic, an European Member State, and UK where the EU can do nothing to have a regard in these negotiations (in taxation).
Now it is not very correct but I have no other choice, I ask the questions and I give you my answers, possible there are different than your opinions.
It is possible, this private and mandatory FTA UK-IR was already signed in secret or in discussion about for UK maintain unilaterally the actual efficient tax processes put in place with the EU. Everything would be already in place and in this case nothing change. Why not! It is a FTA UK-IR by default and the Accord of « Good Friday » in 1998 is preserved. Nobody and certainly no the EU can forbid this intention to maintain the European processes on the part of an independent State. It is the preserved peace in Ireland without any signing between them.
The result to obtain a « Deal » or « No Deal » would be then without importance and makes fall down the pressure in the Brexit negociations.
Before to explain the incidence of this bilateral FTA between IR and UK in the Brexit negotiations, it is important to know why the Irish Republic is favourable to this private agreement.
1) IR is the unique* country in Europe to share the same: History, Ground in the same island of Ireland and a language understood by all (*without Gibraltar which is not in the same situation).
2) The imperious necessity to preserve the peace in the island through the « Good Friday » accord,
3) To avoid a border for the free circulation of people, a border is impossible for the same reasons. For giving another detail, the two countries are outside of the Schengen space and the free circulation of persons in Ireland(s) is not the affair of European Union.
4) In order to prioritise the links in a leader position with: the fifth world economy and the first financial trade place in the world with the City.
5) To have the best relation and trade position between the UK and EU, if an European FTA with the UK is not found (and if it is found it is too the same thing).
In conclusion of these details, the IR will be in the single situation without a new UK-EU FTA, to be the unique country in the UE to have a private FTA and, I think, the Irish Republic makes all is possible to have, with the United Kingdom, in all cases this agreement and Spain also later with Gibraltar – see the next article.
At the moment where the private FTA UK-IR is signed, the actual European Single Market, in this form since 1993, is “dead”! Spain, in the same border situation with Gibraltar, will makes the same thing. Spain already makes an announcement in the sense to refuse the signing of the draft accord of Brexit by the 27 Ministers of Foreign Affairs the 19 November 2018). The European Single Market has just died a second time!
The European Union can not do anything against this situation, because I have mentioned above, there is not the EU which is in negotiations, but the delegation of the 27 Members States through the Council.
Now it is useless to know if a FTA agreement EU-UK is found or not. In the two possible situations we obtain the same result below.
The Irish Republic and Spain also (see the situation with Gibraltar above) will probably abstain in their votes for the UK-European final treaty (if an agreement is found), signed at a qualified majority voting and the IR and Spain will have the best advantages in their two FTA(s). It is the Jackpot and the Irish Republic and Spain will be the winners of the winners in all situations and never, in this situation, the IR will wants its withdrawal from the EU and Spain too!
Do you think now Mr Barnier and his Staff will obtain a so efficient agreement with the rest of the 26 EU Member States? I think no, because this final decision (deal or no deal) of the treaty will be signed by each of the 27 parliaments at qualified majority. This situation opens the private FTA gates for other States. If there is an agreement, they will want to have the same advantages than the IR in its private agreement, directly with the UK, no tax inside the transactions in the two senses. It is legitimate for the others to aim the same thing! With this all the Member States would have the same type of FTA and apply the same system between them inside the Europe, in function of their bilateral economic capabilities. This system will be more flexible and adaptable to the new economic and social realities. The situation becomes more and more complicated for the EU, which now has two « rebellious » States.
The unique solution to obtain this consensus for all parties, where all parties are the winners, where there is no looser, where all the negotiators come out head held high, it is not to suppress the process of VAT, it is to suppress the physical presence of this TAX inside the transaction, by the split payment. (See the B2B VAT cross-border transaction).
I think with « MTD » in UK, « SII » in Spain with other countries in Europe and elsewhere are ready to bring the same technical favorable answer (already ready for some States with the digital statements), the United Kingdom is at the best IT level position to implement this solution for the best for all.
It was the subject of my first article on LinkedIn and dagtva.com.