The UK left the EU on January 31st 2020. As a result of the transition period in the Withdrawal Agreement, EU law will continue to apply in and in relation to the UK until the end of the transition period - scheduled to end on December 31st 2020.
After the end of the transition period the EU Treaties, EU free movement rights and the general principles of EU law (such as the single market and the customs union) will cease to apply in the UK. Prior EU regulations will continue to apply in UK law until they are modified or revoked by UK regulations.
Technology and Communications businesses need to prepare for the end of the transition period. The following areas are outlined in this note:
This Checklist is an update to the Checklists previously issued by Bird & Bird in 2018 and 2019.
It is now clear that in line with the Conservative manifesto for the 2019 election the UK will leave the EU single-market at the end of the transition period, including the free movement of people. However, the Government has committed to protect the rights of EU nationals and their family members who wish to stay in the UK after Brexit. The EU Settlement Scheme ("Scheme") requires EU nationals to register in order to preserve their rights under UK law (including rights to work, pensions, healthcare and other benefits). The Scheme went live on 29 March 2019 and is mandatory for all EU nationals who wish to continue living in the UK after 31 December 2020. 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. In particular, EU citizens lawfully resident in the UK at the end of the transition period will continue to receive access to NHS-funded healthcare in England but will need to be able to provide evidence that they are lawfully resident in the UK and that they were residing in the UK at the end of the transition period and provided they register their new status by 30 Jun 2021.
Businesses with British Citizen employees residing and working in EU 27 Member States should also ensure that affected individuals have complied with national requirements to protect their continued right to reside and work in that Member State after Brexit.
Cross-border workers based in the UK (who are British Citizens) but work in multiple EU Member States would need to carefully plan their future activities as freedom of movement will cease to apply after Brexit, which may mean they will need to obtain multiple work permits, visas and/or residence permits in order to work at client sites in EU 27 Member States.
Looking beyond Brexit, the Migration Advisory Committee ("MAC") published a report in September 2018 which served as an indication of the future migration landscape for EU workers. In December 2018, the previous UK Government accepted most of MAC's recommendations to facilitate the employment of migrant workers regardless of their nationality. The broad policy direction then recommended by the MAC was for the non-EU worker work visa scheme to be extended to all migrants including EU nationals, with adaptations to attract higher-skilled workers.
The new MAC report published last month follows their previous 2018 report and recommends the current UK Government to maintain the existing Tier 2 visa worker route. The new MAC report also suggests the minimum salary threshold for a Tier 2 work visa to be reduced from £30,000 to £25,600 (in most instances) to address the concerns raised by businesses.
We expect the new MAC report to be discussed by the Cabinet members shortly. The White Paper on the future Immigration Rules is expected to be published soon. It remains to be seen whether the current UK Government will go beyond MAC's suggestions and introduce a new set of rules for obtaining work visas under the banner of "the Australian-style points-based system" in the next 11 months.
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, particularly 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 applicable “trusted trader” system that may be introduced, including the Transitional Simplified Procedure (TSP).
The TSP was to be introduced by HMRC in the event of a no deal Brexit to reduce customs congestion by allowing businesses to defer full import declarations and payments until a later date. The TSP can now be expected to be introduced at the end of the transition period if the planned UK/EU trade agreement does not cover this area. The TSP will enable businesses to defer duty payments and full declarations on exports and imports between the UK and the EU, thus streamlining the movement of goods through ports.
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). Similarly to the WTO rules for goods, the GATS imposes an unconditional most favoured nation obligation. It also imposes requirements concerning national treatment and market access, subject to the member country having made relevant concessions in its schedule of commitments. GATS specifies generally that the international sale of services between WTO members are tariff-free.
For more information on future trading arrangements click here.
EU to UK data transfers
: The departure of the UK from the EU on January 31st 2020 has not led to dramatic immediate changes in UK data protection law. The GDPR (taking into account the derogations introduced by the Data Protection Act 2018) continues to apply in the UK through the transition period. Afterwards the derogated Regulation will be enacted into UK law. The GDPR will also continue to apply to UK organisations which trade in the EU to the extent any of their processing activities are caught by the extra-territorial provisions.
Even so, unless the EU Commission grants an adequacy decision in respect of the UK by the end of the transition period, there is a risk that after 31 December 2020, transfers of personal data from the EU to the UK will constitute a transfer of personal data to a “third country” requiring the exporter to put in place alternative safeguards such as Standard Contractual Clauses (SCCs) to legitimise the data transfer or to rely on an appropriate derogation. Note that the effectiveness of the SCCs is still the subject of an ongoing legal challenge in the CJEU from Max Schrems, with the final judgment expected later this year[i] , but in the meantime, their use remains commonplace.
The EU Commission has committed to start the adequacy assessments as soon as possible now that the UK has left the EU, endeavouring to adopt decisions by the end of 2020, if the applicable conditions are met. However, this is highly optimistic, so business should still take steps to understand their data flows between the EU and the UK so that they are ready to put alternative mechanisms in place later in the year if needed.
Data transfers from the UK: The UK Government's position to date has been that the UK will continue to treat EU countries' laws as adequate for the purposes of the UK GDPR and the Data Protection Act 2018. Assuming this remains the case, transfer adequacy mechanisms will not therefore need to be deployed for UK to EU data transfers.
Personal data transfers to other jurisdictions will need to be made compliant with the UK GDPR and Data Protection Act 2018 obligations. Essentially these are as per the pre-Brexit position and the UK government has confirmed that EU adequacy decisions, approved EU SCCs and BCRs will all also be recognised in the UK to legitimise data transfers to non adequate countries. The UK and the US have also agreed measures to enable the EU-US Privacy Shield to be used to legitimise UK to US transfers once the transition period end.
Lead supervisory authority and representative issues: UK businesses with operations or customers in the EU will need to consider their place of EU main establishment for continued EU operations after the end of the transition period. GDPR project deliverables such as data incident response plans should be reviewed with this aspect in mind – i.e. an organisation needs to be clear which authorities it needs to notify in the event of a data breach or an "incident" under the Network Information Systems (NIS) laws.
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. The same is also true of EU businesses which process the personal data of UK based individuals but don’t have a UK presence. They will need to appoint a UK representative.
Click here for more information on how Brexit can impact Data Protection and Cyber Security.
Existing commercial contracts should be reviewed, particularly those involving EU-based entities, in order to assess the effect that Brexit may have on the enforceability of English law contracts where there is a non-UK element to the contract.
Following an influx of hastily drafted "Brexit clauses", disputes may arise as to the enforceability or otherwise of these provisions. For those who attempt to argue that general "force majeure" may apply to Brexit, there is also a chance of disputes arising concerning their interpretation. Another problematic area is where contracts include territorial definitions which, until Brexit, have been based upon the EU territory.
As to procedure for contractual disputes/enforcement of judgments, on the choice of governing law in contracts, Rome I and Rome II, the EU Regulations which currently govern the choice of law of contractual and non-contractual obligations will be incorporated into UK law and therefore will continue to apply. This means that the position in relation to governing law will not change.
The position on determining the jurisdiction of a court to hear a dispute and the enforceability of any resulting judgment is less straightforward. During the transition period the current framework governing this area will continue as before but if the UK is unable to agree a future relationship agreement with the EU the current framework will fall away at the end of the transition period. In this scenario, the UK has said that it would like to accede to The Lugano Convention 2007 as part of any future relationship agreement. This would be welcome as Lugano provides a reciprocal arrangement in the areas of jurisdiction and the enforcement of judgments on a broadly similar basis to that currently in operation between the UK and the EU. If the UK and EU are unable to agree a future relationship agreement then the UK is expected in any event to accede in its own right to The Hague Convention on Choice of Court Agreements from the end of the transition period. The Convention provides a worldwide framework of rules in relation to exclusive choice of court (jurisdiction) clauses only and the recognition and enforcement of judgments based on these clauses in civil and commercial matters.
The effect of accession would be that courts in EU member states (and the other contracting states to the Hague Convention) would be obliged to honour exclusive choice of court agreements designating UK courts, and to enforce the resulting judgments. In respect of contracts signed before the date of accession, there is no certainty as to what regime will apply, nor to contracts which do not contain an exclusive jurisdiction clause.
For further information see our notes on the Cross-border dispute resolution implications of Brexit, English law and English courts can continue to be used in international contracts after 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 as a result of Brexit and may need further application/registration in order to achieve maximum protection over those rights.
After the Transition Period, EU Trade Marks (EUTMs) and Registered and Unregistered Community Designs will no longer have effect in the UK. The UK Government has provided that at the end of the transition period, the UK will automatically create a comparable UK trade mark for every registered EUTM, at no charge. The same will apply for Registered Community Designs (RCDs). However, this will not apply to pending EUTM applications, so tech companies with pending applications should apply to register a comparable UK trade mark in the 9 months after exit day to benefit from the same filing date as the related EUTM application.
Therefore there is technically no need for tech companies with existing EUTM and RCD registrations to refile for equivalent registrations in the UK, as comparable UK registrations will arise automatically. However, for new filings, tech companies are advised to dual-file in the EU and UK, particularly as we get closer to the end of the transition period. This is because EUTM applications pending at the end of the transition period will need to be re-filed in the UK anyway. Tech companies should also review the following:
- Whether they have any pending oppositions/cancellation actions at the EUIPO: actions which are only based on UK rights will fall away; parallel actions against the new comparable UK trade mark will need to be brought.
- Whether their existing EUTM legal representatives will remain entitled to represent them before the EU IPO after Brexit. Bird & Bird will be able to represent clients before both the UK and the EU IPOs.
- Their broader enforcement strategy: after the end of the transition period a new pan-EU injunction will not cover the UK and will not be available in the UK, meaning both EU and UK proceedings will need to be brought to cover all of Europe.
- Whether they have an EU customs notice ("Application for Action") in place which was filed via UK Customs: these will fall away and need to be renewed/re-filed via one of the remaining EU countries. A UK filing will also be needed.
- Whether they have hardware businesses affected by parallel imports between the UK and continental Europe: the ability for trade mark owners to prevent imports from one territory to the other will differ depending which way the goods are going.
- References to the EU in brand licence agreements will need to be considered.
For additional information on what to consider in regards to IP click here.
Software export controls
Export controls apply generally to items that are specially designed or modified for military use and to items designed for civilian use which have potential military uses (‘dual-use’ items). Some software is subject to EU export control as dual use items, including many commonly used encryption protocols, unless the products are specifically excluded (such as smart cards and smart card reader/writers and mobile telephones for civil usage) or are excluded as being generally available to the public at retail selling points.
The EU Dual Use Regulation has been incorporated into UK law. However, from the end of the transition period the UK will be regarded by the EU as being a third country for the purposes of EU export control. The European Commission has made clear that it will amend the General Export Authorisation ("GEA") for the export of all dual use items (including encryption software) to include exports from the EU to the UK. Exporters of dual use software from the EU to the UK (that is not exempted) must notify the relevant national competent authorities of the first use of the GEA and EU Member States may require registration prior to first use of the GEA.
For transfers from the UK to the EU, the UK has already issued an Open General Export Licence (OGEL) to cover the export of dual use items (including encryption software) from the UK to the EU from the end of the transition period. The OGEL has conditions and does not apply if the exporter is aware that the dual use item is intended to be use in certain weapons systems. Companies need to pre-register with the Department of International Trade for each product for which the OGEL is relied on and must comply with the terms of the OGEL, including a requirement to include a note on official export documentation that the items are exported under the OGEL.
Conformity Assessments (CE marks)
The EU Commission has made clear that from the end of the transition period conformity assessments currently carried out by UK conformity assessment bodies will no longer be valid for EU purposes.
Instead, in order for conformity assessments to be then valid for EU purposes they will need to be carried out by EU-based bodies. Where companies hold existing certificates issued by a UK conformity assessor and plan to continue selling the product in the EU after the end of the transition period, companies will need either to apply for a new certificate from an EU-based conformity assessor or to arrange for a transfer – with the EU Conformity Assessor then taking over the responsibility for that certificate.
In the UK manufacturers will be able, for a period of time (currently unspecified), after the end of the transition period to continue to use the CE marking when placing their products on the UK market (if their product meets the relevant EU requirements), including where products have had a third-party assessment carried out by an EU-recognised body. The new UK Conformity Assessed (UKCA) mark will also be available for products that require third party assessment of conformity within the UK. This will need to be carried out by a UK-based Approved Body. For a “time-limited period” both CE marking and UKCA marking will both be accepted in the UK. After that period UKCA marking will be required, declaring conformity with the UKCA marking regulations instead of the EU directives and regulations.
When the UK becomes a “third” country for EU purposes (on departure from the single market at the end of the transition period) UK manufacturers exporting products to the EU27 must appoint an importer. Similarly products from the EU placed on the UK market will require a UK importer.
- Mark the product with their name and address;
- Understand and check the markings, declarations and technical file;
- Satisfy themselves that the CE or UKCA marking process is complete;
- Be the primary point of contact for the EU or UK authorities; and
- Be prepared to cooperate with the authorities if there is a product recall or similar.
The Geo-Blocking Regulation came into force in the UK in December 2018. Amongst other matters, it prohibits 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 Regulation will remain in force until the end of the transition period.
A Statutory Instrument has been made under the EU Withdrawal Act which will revoke the EU Geo-blocking Regulation in the UK when it is brought into force – which is envisaged to be from the end of the transition period. Companies would then not be prohibited from discriminating in the UK between EU customers and UK customers in their on-line businesses.
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. More generally, companies should be aware that the Competition (Amendment etc.) (EU Exit) Regulations 2019 will adapt EU competition regulations to become a set of domestic regulations as from the end of the transition period. A further SI has been drafted but not yet made, transposing the EU State aid regime into domestic law (with amendments) and making the CMA the enforcement authority.
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 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 on our dedicated Brexit Portal as these issues become clearer.
For further information and advice on these topics please contact one of our specialists
[i] The Advocate General issued his Opinion on the matter on 19th December 2019 (C-311/18) and concluded that nothing in his analysis led him to conclude that SCCs should be invalidated.