In the light of the extremely luke-warm reception given to the Brexit Withdrawal Agreement (“WA”) agreed by the UK government and the EU negotiation teams, and the fact that the WA has to be approved not only by the UK parliament but also by a qualified majority vote of the EU Council, the prospect of a "no deal" Brexit must be seen as a real possibility. A qualified majority vote requires the votes of 72% of the member states representing 65% of the population of the remaining 27 countries.
By "no deal" Brexit, we mean UK leaving the EU on expiry of Article 50 on 29th March, without a transitional agreement and with no agreement on a future trading relationship between UK and EU.
We recommend that Technology and Communications businesses prepare for the most unfavourable Brexit outcome and bear in mind the following.
Under a no-deal scenario, the UK will lose access to the single-market, including the free movement of people. However, even without a deal, the Government has committed to protect the rights of EU nationals and their family members who wish to stay in the UK after Brexit. In June 2018, the Government proposed a new EU Settlement Scheme ("Scheme") in order for EU nationals to register and protect their rights under UK law (including rights to work, pensions, healthcare and other benefits). The Scheme is currently operating in a pilot stage and is expected to go live by March 2019, whatever form Brexit takes. The Scheme is mandatory for all EU nationals who wish to continue living in the UK after 31 December 2020. Recent Home Office guidance on the Scheme is available here.
Organisations should assess how the Scheme will affect their workforce, and consider the development of a communication plan to inform and support employees with registration. We encourage businesses to take proactive steps at this stage to ensure all employees retain the right to work in the UK and avoid business interruption.
Looking beyond Brexit, the Migration Advisory Committee ("MAC") published a report in September 2018 which serves as an indication of the future migration landscape for EU workers. Although not binding on the government’s plans, it is considered to carry persuasive weight. The broad policy direction recommended by the MAC is for the current work visa scheme, applicable to non-EU workers, to be extended to EU migrants, with some adaptations to attract higher-skilled workers.
For more information click here.
Trade, Tax and Tariffs
Multinational tech companies should review their international strategies to determine whether, and to what extent, they continue to use UK group companies as a gateway to the EU as companies within the EU will no longer be able to rely on EU directives to eliminate withholding tax on dividend, interest or royalty payments to the UK.
In addition, businesses which currently rely on the Mini One-Stop Shop (MOSS) enabling businesses to register and account for VAT on all relevant supplies throughout the EU via a single registration for sales to EU customers will need to register in an EU jurisdiction as the UK will no longer be part of the MOSS scheme.
Tech companies need to consider their trading position under WTO rules. Businesses trading goods with the EU27 should review their supply chains and consider how they will handle the logistics of import and export declarations and procedures, and should check or obtain their EORI registration and prepare for participation in any “trusted trader” system that may be introduced.
For sales of software and services between the UK and EU and vice versa, WTO rules treat sales of packaged software, in general, as "products" that are covered by the 1996 WTO Information Technology Agreement. This Agreement eliminates tariffs on a broad range of high technology products including packaged software and computer hardware. Whether cloud-based or sold on physical media, international software sales between the UK and the EU should remain tariff-free.
SaaS and other IT services (e.g. consultancy) are classified as services rather than a product. These fall under the General Agreement on Trade in Services (GATS). GATS specifies generally that the international sale of services between WTO members are also tariff-free.
For more information on future trading arrangements click here.
EU to UK data transfers: The UK will (in general terms) abide by the GDPR on an on-going basis after a "no-deal" Brexit as the GDPR has been implemented into UK law by the Data Protection Act 2018. Even so, the EU Commission considers that in the event of a "no deal" Brexit transfers of personal data from the EU to the UK will be a transfer of personal data to a third country.
The normal "toolbox" for such transfers would then need to be used in any period before any adequacy decision (about UK laws by the EU Commission) is made. These are the EU Standard Contractual Clauses (SCCs), Binding Corporate Rules, together with the various derogations for specific situations allowing data transfers (e.g. explicit consent, contract performance, the exercise of legal claims or for important reasons of public interest). Note that the effectiveness of the SCCs are the subject of an ongoing legal challenge from Max Schrems, but their use is still commonplace.
The EU Commission has made clear that it will not make an emergency or "fast track" adequacy decision as part of the Commission's contingency planning.
Data transfers from the UK: At the time of writing, no mechanism has been agreed between the UK and the USA to replace the current EU-US Privacy Shield arrangement post March 29th 2019. Businesses which currently rely on the Privacy Shield to make their personal data transfers from the UK adequate will also need to consider alternative arrangements such as those mentioned above if this position persists.
The UK Government has said that the UK will treat EU countries' laws as adequate for the purpose of the Data Protection Act 2018's data transfer provisions. Assuming this remains the case transfer adequacy mechanisms will not need to be deployed for UK to EU data transfers.
Lead supervisory authority and representative issues: The UK's regulator, the ICO, would not form part of any post Brexit GDPR regulatory regime, including the lead supervisory authority mechanism. UK businesses with operations or customers in the EU will need to consider their place of EU main establishment for continued EU operations after March 29th 2019. GDPR project deliverables such as data incident response plans should be reviewed with this aspect in mind.
UK businesses without an EU presence but which process the data of EU based individuals (e.g. their online customers) will need to consider the GDPR's requirements to appoint an EU representative, including so that the representative can deal with regulators on their behalf.
Click here for more information on how Brexit can impact Data Protection and Cyber Security.
Existing commercial contracts should be audited, particularly those involving entities within the EU. Companies should carefully assess the effect that a "no-deal" Brexit may have on the enforceability of English law contracts where there is a non-UK element to the contract.
On the choice of governing law in contracts, the UK Government has indicated that in the event of a "no-deal" Brexit the UK Courts will continue to apply the principles set out in Rome I and Rome II, the EU Regulations which currently govern the choice of law of contractual and non-contractual obligations. The position is therefore unlikely to change.
The position on jurisdiction of courts to hear disputes and the enforceability of contract judgments is very complex. The UK Government's guidance on a "no-deal" Brexit confirms that the Recast Brussels Regulation would be repealed in the event of a "no-deal" Brexit and that the UK would seek to ratify in its own right the Hague Convention on Choice of Court Agreements, which provides a worldwide framework of rules in relation to exclusive jurisdiction clauses and the recognition and enforcement of judgments based on these clauses in civil and commercial matters. However, any ratification would only apply to contracts entered into after the Brexit date. There is no certainty what regime will apply to contracts signed before that date, nor to contracts which do not contain an exclusive jurisdiction clause. The UK may also opt to re-ratify the Lugano Convention in the same manner, although that is less certain. The Lugano Convention is similar in many respects to the Recast Brussels Regulation in the way in which it deals with issues of jurisdiction and the recognition and enforcement of judgments.
For further information see our note on the Cross-border dispute resolution implications of Brexit and our Commercial Drafting Checklist which highlights Brexit-related issues for businesses.
Trade Marks and other IP
Tech companies should identify which of their business’ rights are likely to be affected by a "no- deal" Brexit and may need further application/registration in order to achieve maximum protection over those rights.
In a "no–deal" Brexit, Community rights, such as EU trade marks (previously community trade marks) and registered and unregistered community designs, may no longer have effect in the UK. The UK Government has confirmed that its aim is to "ensure the continuity of protection" and to "avoid the loss" of existing rights. In a "no-deal" Brexit, or if the UK Government does not follow through on its promise to ensure continuity of protection, the rights in question will be automatically reduced in geographical scope and their value will diminish, especially given the economic significance of the UK, which could result in the right-holder losing out commercially.
We recommend securing UK trade mark and design right protection sooner rather than later; failure to do this could mean that you do not have registered rights in the UK following a "no-deal" Brexit.
Our German and UK teams have prepared a video on the effect Brexit is likely to have on trade mark portfolios as well as what trade mark owners need to think about right now click here to view.
For additional information on what to consider in regards to IP click here.
Conformity Assessment (CE Assessment Marks)
The EU Commission has made clear that following Brexit conformity assessments currently carried out by UK conformity assessment bodies will no longer be valid for EU purposes.
Instead, after Brexit in order to be valid for EU purposes conformity assessments will need to be carried out by EU-based bodies. Where companies hold certificates issued by a UK conformity assessor prior to Brexit and plan to continue selling the product in the EU post-Brexit, the EU Commission recommends that companies either apply for a new certificate from an EU-based conformity assessor or to arrange for a transfer – on the basis of a contractual arrangement between the manufacturer, and the UK and EU conformity assessors - with the EU conformity Assessor then taking over the responsibility for that certificate.
The Geo-Blocking Regulation will apply from 3rd December 2018 and, amongst other matters, will prohibit blocking access to, or forced redirection away from, a website on the basis of an internet user’s EU nationality or place of residence within the EU.
The Geo-blocking Regulation is expected to be disapplied in the UK under the EU Withdrawal Act so that, following a "no deal" Brexit, UK companies would not be prohibited from discriminating in the UK between EU customers and UK customers in their on-line businesses. However, within the EU27 the EU Regulation will continue to apply to UK businesses, meaning that UK companies will not be able to discriminate between customers in different EU member states, for example between French and German customers.
Companies operating in the UK and the EU should consider potential exposure to parallel investigations by the European Commission and UK Competition and Markets Authority (CMA) and the need to safeguard their position under both the UK and EU regimes.
They should re-assess territorial restrictions in agreements, as between the UK and the EU, under the anti-trust rules as from Brexit. If you are planning a large-scale merger or acquisition, consider whether it will be subject to merger control scrutiny by both the UK CMA and the European Commission, as the Commission will no longer be a “one stop shop” for large mergers affecting the UK, as from Brexit.
Read more on the competition law implications here.
How Bird & Bird can help
Bird & Bird has a range of tools to help businesses prepare for the commercial impact of Brexit, this includes:
- Our Brexit Briefings that offer further information about the ramifications of Brexit on a particular sector or area of law
- Our EU Legislation Tracker highlighting Regulations and Directives scheduled to take effect or to be implemented by Member States in the period prior to the UK's departure from the EU.
- Our Brexit Jargon Buster for simple explanations that help you get to the heart of the issues in the Brexit debate.
- Our Commercial Drafting Checklist which highlights Brexit-related issues for businesses to consider when contracting during this period
Further Alerts and Briefings will be issued by Bird & Bird as these issues become clearer.
For further information and advice on these topics please contact one of our specialists.