Effectively managing the indirect tax challenges – Part 2

11 October 2016

The UK’s decision to leave the European Union (“EU”) is likely to present challenging issues for UK-based businesses from an indirect tax perspective. In this blog, we continue to explore the potential indirect tax implications and what they might mean from a practical standpoint for businesses operating in the North Sea.

  1. Single Market Access

 The free movement of people is one of the key cornerstones of the single market and of the UK being within the EU. If the UK is unable to obtain an agreement which would allow for the free movement of people, then this could create some disruption to businesses in the North Sea region to effectively resource complex offshore projects. The current environment allows for specialist resource to be deployed relatively quickly. However, in a post-Brexit world there could be additional financial, taxation, administrative and procedural factors for UK operators to consider when seeking to hire non-EU citizens for North Sea projects.

The position could similarly be uncertain for UK based operators seeking to procure specialist equipment from EU Member States as post-Brexit the UK may not have free access to the EU like it does now. Unless a similar set of terms are negotiated, the likelihood is that UK operators will face additional costs when importing goods from EU Member States.

  1. Legislative Development and impact on operational activity

The current UK customs legislation is based on the European Union Customs Code (UCC). Post-Brexit, the UK will not be obliged to align its legislative provisions with the UCC. It is difficult to accurately predict at this stage what the UK legislation will resemble. However, it is possible that the UK could a) do nothing and adopt the current legislation in line with the UCC, b) adopt a hybrid model, using certain aspects of the UCC and other newly drafted provisions or c) revert to the old customs Community Customs Code (CCC). It is possible that whichever option is considered, the Customs & Excise Management Act (CEMA) could be used as the framework to build UK legislation on.

From a practical standpoint, this could present some really complex challenges for operators in the oil and gas sector. If, for instance, you own or operate a Floating Production Storage and Offloading vessel (FPSO) there could be lengthy periods in the current business climate when these assets are not in operation and are temporarily dry-docked/stacked or under repair at a UK shipyard. Given the uncertainty over what the customs legislation may look like post-Brexit, it could be difficult to ascertain how to apply the rules in these circumstances.

If the vessel or FPSO is located at a UK shipyard for a period of time which spans the current CCC/UCC legislative provisions and the implementation of new legislative provisions, how would the customs treatment the vessel/FPSO be determined? How would you value the import from a customs duty perspective? What reliefs are likely to be available, e.g. inward processing or ship work end use? Is there anything that could be done to mitigate the potential risks, e.g. seeking to amend contractual terms?

At this stage it is difficult to predict what HMRC’s plans are likely to be post-Brexit. For example, could they conceivably push businesses to apply for Authorised Economic Operator (AEO) certification after the UK formally leaves the EU? Against the backdrop of low commodity prices, decommissioning liabilities in the North Sea region and operational challenges, it may be that the government could, for example, create a friendlier commercial environment by reducing the complexity and continuing to allow the use of paper manifests to declare the import of goods into and exports out of the UK.

What happens next?

It appears as though Article 50 will be triggered in March 2017, which will begin the formal 24 month process of the UK leaving the EU. This means that businesses will have relatively short space of time to consider the possible ramifications on their supply chain and commercial positions and ensure that they are prepared for the new legislative environment. We would welcome dialogue and thoughts from clients in the sector. If you have any concerns around the practical impact of the potential changes or need support in assessing your readiness for any potential changes please feel free to contact a member of the specialist industry indirect tax team below or your usual PwC adviser.


Prem Mehta – Senior Manager, Indirect Tax

Email | +44 (0)20 7804 1514

View Alan McCrae's profile

Jason Wellden – Senior Manager, Indirect Tax

Email | +44 (0)20 7212 5154

View Alan McCrae's profile



nice information.

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