SUMMARY
- The transition period of Brexit is coming to an end
- Legal consequences of Brexit
- Possible Opportunities of Brexit
I. The transition period of Brexit is coming to an end
As no party is willing to compromise, we now have to cope with a Brexit without any deal. Also, the English Parliament has decided against a Repeal Bill that would have led to all EU rights being incorporated into the national English judicial system. We did not have seen a Royal Assent to such a law. As the transition period is coming to an end rapidly, businesses now really have to check their own legal array and estimate, whether they are ready for the changes coming soon.
II. Legal consequences of Brexit
Privacy Law
The EU General Data Protection Regulation (2016/679) will not apply for the UK after Brexit anymore. Also, the GDPR has not been transformed into national English law. The EU could certify the data protection level in the UK as appropriate. Consequently, the UK would have the status of a secure third country and data could be transferred to it more easily. But there is no sign whatsoever that this is going to happen. Privacy law will have to newly reorganize the transfer of personal data to the UK. If personal information is exchanged, a waterproof system needs to be set up in order to avoid severe fines. Therefore, be aware of significant additional organizational costs and efforts when transmitting personal data between the UK and the EU. What is the best thing you can do if you are concerned? Get the consent of the individuals whose data is intended you would like to send form the EU to the UK.
Labor Law
By the end of 2020, the EU Posted Workers Reform Directive (2018/957) will no longer apply to the UK. After that, the general law of the World Trade Organization will be of the essence here. Cross-border services will still be possible, of course. Nevertheless, there are no signs whatsoever of an agreement between the EU and the comparable to the 90 days rule the EU has with Switzerland. In opposition to that, we expect additional restrictions by British authorities. Immigration and social security law issues will have to be approached systematically in the future. Now, especially employment contracts need to be checked and adapted by subsidiaries of EU businesses situated in the UK.
Tax Law
We expect many tax-related changes post-Brexit, just notice the Taxation (Cross-border Trade) Act 2018. Taxation will very likely change the most. From a corporate point of view, value added tax issues are to be focused on, firstly. As the UK will become a third country on January 1st, 2021, the EU simplification rules will no longer be applied. Supply- and performance relationships to the UK have to be examined whether there is a registration duty. Businesses have to see if they are required to request a UK tax number.
Company Law
Now, it is probably too late to proactively verify corporate structures. Hence, a corporate transformation is complicated and takes time. The corporate form of -company limited by shares (Ltd.)- with official headquarters in Germany will not be classified as a corporation by German law anymore. Therefore, you have to face the fact that liability will not be limited on corporate assets which can lead to destructive aftermaths for shareholders. Also, Irish company law is to be regarded. Companies registered in Ireland are legally obliged to have at least one director situated in the EEA. Therefore, a common case should lead to problems: An Irish director as a resident of the UK will not meet this requirement in the future. All in all: Alternative corporate shells have to be considered. For instance, founding a Dutch BV or a German UG might be an alternative.
Role of GBP
Since the decision for leaving the EU has been reached, the British currency Pound Sterling has been weakened. Receivables in GBP are to be written off partially. Also, the effects on profits need to be assessed. Accounting and commercial audit have to be readjusted. Judgements cannot be enforced as easily as before after Brexit in the UK. The Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure will not be valid in regard to the UK starting on 1st January 2021. There are several possible alternatives. An arbitration agreement according to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) or you can fall back on the Lugano Convention 2007 or The Hague Convention on Court Agreements.
M&A / Antitrust and Competition
Concerning M&A, it makes sense to temporarily freeze transactions in private equity and venture capital operations in connection with the UK. We just have to wait the actual future development now. The exact arrangement of company acquisition contracts within the next few years can hardly be predicted at the moment. Therefore, an accurate risk evaluation will be indispensable. Last but not least, M&A contract negotiations in regard to the required choice of law clause will receive a different significance soon. From an antitrust point of view, it is now mandatory to stay in contact with the European Competition Authorities, but also with the Competition and Markets Authority in London in the context of M&A activities.
We cannot predict which specific regulative mechanisms will govern import and export activities concerning the UK finally. UK originating goods will not be EU originated goods in the future, as a matter of fact. For imports from the UK that are conducted while agreeing on euro-prices, so called „provisions for impending losses“ should to be thought of in company accounts. Additionally, we have to expect substantial tariff burden. Customs formalities will lead to an additional heavy charge for administration.
License Agreements and registered (EU-)Designs and EU-Trademarks
EU-Trademarks, EU-Designs and license agreements will not lose protection after the transition period has ended, as long as you have registered these before. The same legal status applies to registered designs. Registrations with the World Intellectual Property Organization and the European Patent Office before Brexit stay valid. Nevertheless, the licensing agreements in regard to brands/trademarks, designs and patents still have to be checked. After all, there might have been displacements concerning territorial protective effects. This is due to the fact that existing contract clauses need to be interpreted differently after Brexit. It is not sure whether clauses like „valid throughout European territory“ will still include the UK from the perspective of German law, for example. In regard to new agreements, this issue needs to be addressed, that is the term „EU” has to be defined. The basic element here is the respective contract: A lawyer has to clearly differentiate between dynamic and static clauses incorporated into such treaties. It is still open how things will be handled after the transition period precisely. We think separate registrations will be necessary soon.
Contract Law
If not yet done, contract partners have to be addressed. Maybe, Brexit clauses can still be added to consisting contracts. Legal concepts as “frustration of contract” will not apply in most of the cases. As already mentioned, choice of law clauses are important as London is a pricey place to file a claim. English and European law will certainly develop in different directions. Check your contracts and analyze whether there are risks are to be dealt with from the term “EU”. Suitable alternatives for contractual issues are the United Nations Convention on Contracts for the International Sale of Goods or the International Commercial Terms.
Asset Protection (Company Succession)
Plans in regard to corporate succession might also be affected by Brexit, if the adjustment of the so-called „wage regulations“ (German legal instrument) does not lead to a legal sparing of corporate assets, Sec. 13a Inheritance Tax Code (ErbStG). Employees in the UK will not be included into the 400 % margin of Sec. 13a ErbStG after the transition period has ended. Therefore, businesses with connections to Germany could therefore face substantial tax disadvantages if action is not taken in a timely manner. Succession planning has to be adapted to protect your assets. Especially as far as inheritance tax is concerned, Brexit could have severe implications. This is why estate planning is to be screened for possible risk accumulation.
III. Possible Opportunities of Brexit
From a historical point of view, periods of massive upheaval have always not only bred losers, but also winners. Alongside serious hazards, there have always been great chances, too. For those who are ready for the changes coming up, Brexit and a UK under pressure also offer opportunities. Brexit does not mean Finis Britannia. With a divided EU, we will have to see, who will have the last word.
You have questions about Brexit? Get in touch with us!
