Your Taxes: Brexit Special

Your Taxes: Brexit Special

Our take on Brexit is nothing happened

Instead there is already a new sheriff in town for Britain, Israel and over 100 other countries – the OECD. See our recent May 31 article: http://www.jpost.com/Business-and-Innovation/Your-Taxes-New-sheriff-in-Israel-455581

The case for the UK staying in the EU was mainly based on fear of change. Immigration was an issue, it will remain an issue.

This change in world economic order didn’t happen on June 23 when Britain voted on Brexit, it happened over the last as the OECD initiated two major fiscal initiatives worth trillions of dollars aimed at individuals (Common Reporting System) and corporations (BEPS = Base Erosion Profit Shifting). The movers and shakers in the OECD are the US and UK.  Recently, the EU has begun adopting OECD measures.

The OECD’s Brexit Reaction:

On June 24, the day after the Brexit vote, the OECD published veiled criticism of the EU: “The OECD will spare no efforts in supporting the Government of the United Kingdom to make the transition as smooth as possible and advance the country’s economic and social agenda…we will continue to support the European project while further reflecting on how to strengthen well-being and inclusiveness, both within our countries and globally.”

About the OECD:

The OECD says its mission is to promote policies that will improve the economic and social well-being of people around the world. The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems. It works with governments to understand what drives economic, social and environmental change. The OECD sets international standards on a wide range of things, from agriculture and tax to the safety of chemicals. The OECD also recommends policies designed to improve the quality of people’s lives.

In practice, the OECD’s standards and recommendations are highly influential. For example, the OECD member governments are “expected” to follow the OECD Model Tax Convention and Commentaries thereon, unless they lodge an observation or a reservation – which requires invoking specific procedures..

The OECD has 34 member countries that span the globe, from North and South America to Europe and Asia-Pacific. They include many of the world’s most advanced countries but also Israel and emerging countries like Mexico, Chile and Turkey.

The EU’s limited role in the OECD:

In the Supplementary Protocol No. 1 to the Convention on the OECD of 14 December 1960, the signatories to the Convention (i.e. all OECD members including Israel)  agreed that the European Commission shall take part in the work of the OECD.

While the European Commission’s participation goes well beyond that of an observer, it does not have the right to vote and does not officially take part in the adoption of legal instruments submitted to the Council for adoption.

Free Trade:

The UK will probably get a free trade agreement with the EU like the EU-Israel agreement – it won’t matter too much as free trade agreements apply mainly to goods not services- there are no customs duties on services such as UK financial services nor Israeli R&D. The US is also trying to negotiate a free trade agreement with the EU…Switzerland has trade agreements with the EU. Australia, Canada, South Africa simply trade with the EU countries, knowing that OECD and World Trade Organization rules help preserve world economic order.

EFTA and EEA:

The European Free Trade Association (EFTA) is an intergovernmental organisation set up for the promotion of free trade and economic integration to the benefit of its four Member States – Iceland, Liechtenstein, Norway and Switzerland. EFTA has a worldwide network of free trade and partnership agreements. The UK left EFTA when it joined the EU in 1973. Presumably, the UK might apply to re-join EFTA.

Interestingly, EFTA says it was founded in 1960 as an economic counterbalance to the more politically driven European Economic Community (EEC). In the 1970s, the EFTA States concluded free trade agreements with the EC; in 1994 the EEA (European Economic Area) Agreement entered into force.

The EEA Agreement provides for the inclusion of EU legislation covering the four freedoms — the free movement of goods, services, persons and capital — throughout the 31 EEA States. In addition, the Agreement covers cooperation in other important areas such as research and development, education, social policy, the environment, consumer protection, tourism and culture, collectively known as “flanking and horizontal” policies. The Agreement guarantees equal rights and obligations within the Internal Market for citizens and economic operators in the EEA.

What about the WTO?

The World Trade Organization (WTO) has 162  members including Israel.

The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes.

WTO agreements require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted. Various WTO councils and committees seek to ensure that these requirements are being followed and that WTO agreements are being properly implemented.

What about the UN?

The United Nations has an economic side but is more political as we know….

To Sum Up:

We believe Brexit merely gives expression to a process that begun some time ago. There is a new economic world order. The OECD and other international organizations are leading the way, the EU is more of a follower.

As always, consult experienced tax advisors in each country at an early stage in specific cases.

leon@hcat.co

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd

December 21, 2016

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