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The Tax Strategy Group (TSG) warns that in the absence of any action by the UK and Ireland, duty free sales would emerge between the two countries due to the UK’s status as a ‘third country’ after the transition period of Brexit.
The increased availability of cheap tobacco and alcohol products in the state would have a negative impact on public health policy and is also likely to promote more “travel for tax reasons,” it warns, with the potential to significantly affect the numbers of Government Finance. .
“As it stands, a tax-free regime for UK / Ireland travel will create significant difficulties in tax administration and compliance costs, reduce indirect tax revenue and have a negative and distorting impact on the retail sector in Ireland given the frequency of flights / Maritime passenger movements involved, “officials state in a TSG report on Brexit preparations.
It says legislation passed last year offers an option to restrict duty-free sales between the UK and Ireland, ensuring that special taxes are applied to alcohol and tobacco sold in duty-free shops here to people who travel to the UK after Brexit.
“The intention of the policy was to initiate the measure should the UK decide to restrict the scope of duty-free sales of special products (alcohol and tobacco products) on a reciprocal basis,” he says.
However, it was not possible to devise a similar measure in relation to VAT on goods sold in duty-free shops.
“In the event that the UK is in a position to restrict duty-free sales in relation to excise goods from the end of the transition period, Ireland will seek to apply similar measures on a reciprocal basis, as intended. in the 2019 Brexit Omnibus Law. These measures will be detailed in the new Brexit Bill, “the report states.
Similar restrictions would also apply in relation to the sale of excise goods during passenger travel to the UK.
“The bill also provides for an amendment to allow duty-free shops to be established in a port, as well as in an airport, where there are adequate conditions for the safety of products subject to excise duty and where the Treasury has granted the approval, “says TSG.
The group also warns that a substantial increase in VAT refunds on goods purchased here by UK residents returning home after a visit could increase the risk of abuse of the scheme.
The TSG says that it is the opinion of the Minister of Finance that any scope for fraudulent abuse of the Retail Export Scheme (RES) should be minimized.
The RES allows travelers residing outside the EU to benefit from VAT relief on goods that are bought in the EU and then exported when the traveler leaves the EU.
After the Brexit transition period, the UK will become a ‘third country’, making residents (excluding those living in Northern Ireland) eligible for VAT refunds on purchases of qualifying goods under the scheme.
“Due to the number of passenger movements between the UK and Ireland, the volume of claims for reimbursement is likely to increase significantly, which at the same time increases the risk of abuse of the RES,” says the TSG report.
“VAT fraud is a serious matter and it is the opinion of the Finance Minister that any scope for fraudulent abuse of the scheme should be minimized.”
The report says that the UK has yet to state its position on the scheme, but if it applies a full post-RES transition, Ireland will comply and thus operate a VAT-free RES between Ireland and the UK.
“In the event that the UK restricts VAT RES or does not apply the same to Irish passenger traffic, Ireland will apply measures similar to those provided for in the Omnibus Brexit Act 2019 to minimize the potential for abuse of the scheme and reduce the possibility diversion in retail consumption from Ireland to the UK, post-transition, “says the strategy group.
The report says the legislation would be amended so that the value of the goods would have to exceed € 175 to qualify for a refund under the scheme.
Proof of importation of the goods into the UK would also be required, as well as proof of payment of UK VAT and duties.
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