WITH new UK prime minister Theresa May apparently determined to fulfill the wishes of the Brexit referendum result backing Britain leaving the European Union, what EU accounting and taxation laws will ultimately remain on the British statute?
The PM has made it clear she recognises that a key force behind the ‘leave’ vote was a dislike of unrestricted EU immigration into Britain, and should she satisfy that demand, the prospect of the UK becoming a non-EU member of the European Economic Area (EEA) will become most unlikely.
Non-EU EEA states such as Norway and Iceland have to accept EU immigration (with some recourse to emergency controls in cases of social unrest) in return for admission to the EU single market for industrial goods and services, which of course includes accountancy. No such admission to the EU single market for services exists for Switzerland, which retains strong links with the EU, but which is also mulling EU immigration controls.
So single market laws laying down rules on accounting, bookkeeping and company formation may not apply in Britain, assuming it will quit the EU, which could well happen within 2019 under the EU’s article 50 schedule for departing member states.
Of course, with more than 23,000 EU laws currently in force, there is every chance that the UK will not immediately change how European accounting and tax legislation applies in Britain once it formally leaves the bloc. But from that point onwards, it will be able to amend or unpick such legislation, without being hauled before the European Court of Justice (ECJ). So accountants will need to keep a close eye on UK legislation and watch carefully for how it might conflict with EU laws, especially when serving corporate clients working in or selling into remaining EU member states. There may well be additional compliance demands.
As it stands, there is a comprehensive slew of EU accounting and company law legislation impacting on how accountants work that may come up for review. This includes directive 2013/34/EU on annual financial statements, consolidated financial statements and related reports; directive 2009/101/EC on the disclosure of company documents and company obligations; directive 2012/30/EU on forming public limited liability companies, maintaining and altering their capital; directive 89/666/EEC on disclosure requirements for foreign branches of companies; directive 2011/35/EU on mergers between public limited liability companies; and much much more.
The same applies to the critically important EU international accounting standards regulation (1606/2002/EC) and the related law on consolidated standards and interpretations (1126/2008/EC). That said, given UK support for international financial reporting standards (IFRS), it is hard to imagine Britain EU taxation legislation departing from the IFRS gospel preached across Europe.
Tax law
EU taxation legislation would most certainly be reviewed, however. It would cease to apply automatically even if the UK joined the EEA, and tax law is where Britain might be most inclined to contrast itself from the EU, seeking competitive advantages with its former partners. EU VAT directives insisting that standard VAT rates must be at least 15% and reduced rates be at least 5% would no longer be in force. Legislation on harmonising excise duties would most certainly be under review.
The EU’s proposed gold plating OECD model within the proposed directive on BEPS (base erosion and profit shifting) may not be introduced for UK registered companies. And the EU’s proposed law mandating financial transaction taxes would almost certainly never apply in Britain.
Employment law
Another key impact of a Brexit could be on employment law and especially the ability of accountants to move jobs and practices within the EU’s 27 remaining member states, should Britain leave. At present, under the EU’s professional qualifications directive (2005/36/EC), EU accountants wanting to work in different member states have to undergo top-up training, to learn skills required specifically by their destination country.
But they do not have knowledge re-tested when it is required both in their home and new country’s accounting qualifications. If Britain leaves the EU such wholesale recognition would be gone, and British accountants may have to pass a lot more examinations to practice in a sunnier country to the south, or a wealthier country, such as Germany.