• Global businesses trading with EU & UK

Global businesses trading with EU & UK

Global businesses with significant sales and or production in the remaining EU member states and the UK will no longer be dealing with a single market after Brexit.

How supply chains are organised going forward may have a significant impact on the profitability of the two new markets.

For example, where assembly of products (from globally sourced components) currently takes place in the UK but the finished goods are sold in the EU, double customs duty charges may arise. Similar problems may arise for EU manufactured goods sold in the UK.

Global business will need to assess the attractiveness of the separate UK and EU markets after Brexit and plan how to serve them in the most efficient way. In many cases, the new administrative burdens of trading between the UK and the EU (VAT imports and exports, customs duty declarations etc) may be only a minor inconvenience for a global brand. For example, additional costs may simply be absorbed by accepting lower margins in the UK that the EU, or recouped by adopting a premium branding strategy in one market so prices can be increased.

Alternatively, in the longer term it may be cost-effective to build up manufacturing facilities in both markets or segregate supply streams in another way. For example, a US based business may choose to manufacture in the EU for its EU customers but export direct to the UK from the US if a tariff-free trade deal is struck between the US and UK post-Brexit.

Although it is far from clear what the terms of the UK’s exit from the EU will be, planning for the post-Brexit trading environment is not an issue that should be delayed. Where significant business restructuring is needed it is likely to be beneficial to complete this before Brexit takes place so that the group can benefit from the EU directives in minimising the tax costs of the restructure. However, US based groups may wish to defer the execution of any transactions pending implementation of the sweeping corporate tax reforms proposed in the US.

While all aspects of the business model will need to be considered, from the impact of preferential customs duty rates to business relocation and the impact of relocating the work force, it is the fundamental attractiveness of the UK market and EU markets that should drive global businesses reaction to Brexit.

BDO can help you identify and model the relative tax environments for both corporate and employee costs to support your overall business analysis for your response to Brexit.