brexit readiness conference · 11/26/2018 · richard doherty, deloitte brexit programme...

Brexit Readiness Conference26 November 2018

Brexit - State of play and what to expectRichard Doherty26 November 2018

Brexit Readiness Conference© Deloitte Belgium 3

Agenda

Current state of negotiations and what to expect in coming monthsRichard Doherty, Deloitte Brexit Programme Coordinator

Supply chain operational & systems aspectsIan Washington, Supply Chain & Operations

Global trade, customs & excise aspectsDaan De Vlieger, Global Trade Advisory

The Brexit from a UK perspectiveNigel Pickard, Senior Partner & member of Brexit Leadership Team

Break

Legal/contractual aspectsJürgen Egger, Laga; Anne-Line Servaes, Deloitte Accountancy

Cross-border employment aspectsKoen Beckers, Filip Van Overmeiren, Global Employer Services

LunchBrexit boot camps

09:00

09:15

09:45

10:15

10:45

11:00

11:30

12:00

VAT aspectsLiesbet Nevelsteen, Daniel Lyons, Indirect Tax

Business location considerationsPamela van Kruijsdijk, Global Location Strategies

Break

Corporate tax & withholding tax aspectsEric von Frenckell, Laga

Closing considerations & Forward lookHerman Van Rompuy, former President of the European Council

ClosingPiet Vandendriessche, CEO Deloitte Belgium

Networking drink

13:00

13:30

14:00

14:15

14:30

15:00

15:15


Financial settlement

Irish border

Citizens’ rights

EU budget contributions

Reciprocal protection of EU and UK citizens’ rights after Brexit

Avoiding a physical border in Ireland

• UK due to leave EU on 29/03/19

• Proposed 21 month transition period to 31 December 2020

• Broadly ‘status quo’ conditions: paying into budget but no say in discussions/decisions

• Ability to negotiate, sign and ratify trade deals that will apply after transition

• Main points laid out in joint “Political Declaration”

• Potential for far-going deal compared to other external partners’ relationships

• Considerable level of detail still to be negotiated after UK leaves EU

• But EU keen to avoid UK “having its cake and eating it”

Brexit negotiations cover three distinct but connected areas:

Withdrawal Future RelationshipTransition

Brexit – State of Play


Withdrawal Agreement

• Document agreed by negotiators; and UK/EU governments

• Includes ‘temporary’ membership of customs territory – and … Irish ‘backstop’ means that both EU and UK must agree to end customs territory / arrangement

• Withdrawal Agreement needs UK Parliament approval; and then ratification by European Parliament

• Only then will the exit terms be agreed to guarantee the transition period from 30 March 2019, and the UK exit on that date

• Transition period – at least 21 months – can be extended once

• If not ratified by both Parliaments, possible options include a “hard Brexit” – or an extension of the Article 50 period beyond March 2019 – or even a withdrawal by the UK of its request to leave the EU.

Future Relationship

• No yet agreement on the terms of the future UK/EU relationship: formal negotiations only start after UK withdrawal

• ‘Political Declaration’ setting out future direction has been agreed by EU and UK in general terms; –generally well received and foresees close cooperation (without special privileges for the UK)

• Many details are (deliberately) not clear

Brexit – State of Play (2)

Brexit


Focusing on the areas that matter

Brexit: what are the business issues?

Trade / supply chain

People / workforce

Technology / systems and data


Nine key areas within the three clusters

Assessing the Impact

Are (some

of) your

critical

suppliers

based in the

UK?

Does your

business rely

on EU Free

Trade

arrangements

for market

access to the

UK?

Are (some of)

your main

customers

based in the

UK?

What % of

your

employees

are UK

nationals?

In what

locations

does your

business

have

operations?

Can your

suppliers

provide

assurance

over their

Brexit

readiness?

Do you

tender for

EU public

contracts

together with

UK-

registered

parties?

Do you hold

data on the

UK in BE/EU

or BE/EU

data in the

UK?

How are the

goods or

services you

provide

regulated,

and by which

regulatory

bodies?

Brexit - Supply ChainIan Washington26 November 2018


Companies need to understand the resilience of their supply chains in the face of key Brexit challenges, and adapt where necessary

The impact of Brexit on Supply Chains

Organisational resilience and operations

Distribution, inventory planning and borders

Suppliers: visibility, mapping and assurance

• Increase visibility and awareness of critical suppliers

• Understand and assess supplier readiness

• Identify potential changes in supply base

• Understand potential to near shore suppliers

• Quantify increased costs due to customs duties, processing costs and regulatory divergence

• Understand where regulatory change may threaten supply

• Consider impact of border delays on inventory storage and distribution channels

• Establish approach to managing Brexit (e.g. centralised task-force)

• Identify potential risks to contractual obligations

• Understand potential for staff shortages in critical operational areas

• Factor lead times into decision timeframes


Only as strong as your weakest link, organisation focusing on uncovering hidden areas of risk in multi-tier supply chains

Visibility of critical suppliers

Brexit requiring companies to review their whole supply chains. Visibility down the tiers of the supply chain a real challenge

Engagement with critical suppliers to assess their Brexit readiness, identifying those suppliers posing the highest risk to operations

Potential that EU based suppliers have no customs experience/capability

Raises the need for full visibility of contract risk


Planning for immediate disruption as well as long-term variation to lead time

Distribution and inventory planning

Planning for significant impact at the Channel Ferry Ports and Tunnel – extra checks - reduced capacity

Sourcing alternative routes – using deep sea ports and air bridge capacity

Stock levels for ‘critical’ products - warehousing and distribution centre review – how long for and who holds the stock?

Need to consider Day 1 impact and then living with the ‘new norm’


Does supply chain optimisation post-Brexit mean a change to the supply chain strategy?

Organisational resilience and operations

What are the long term strategic priorities?

What immediate changes need to be made to manage short term disruption?

Does Brexit present a case for change?

Strategic priorities

What will the impact be on operational and financial performance?

Is the operating model still fit for purpose?

What additional lead times should be factored into decision timeframes?

Operating model

How can supply chain resilience be enhanced?

Who are the critical suppliers and do they have robust plans in place?

What is the potential for staff shortages in critical operational areas?

Resilience

Do supply chain capabilities maintain competitive advantage?

Does current sourcing present an advantage?

Do contracts need updating?

Competitive advantage


Focus on your organisations ‘position of least regret’

Structured risk assessment process

• Supplier Risk - visibility of critical suppliers

• Issues at the border - distribution and inventory planning

• Organisational Resilience - changes needed to you supply chain strategy

The lead time - moving from risk assessment and planning to implementation

Given the continuing uncertainty…

Conclusion

Brexit - Customs & Trade AspectsDaan De Vlieger 26 November 2018


Principal implications of UK no longer being part of the EU Customs Union (‘no deal’ scenario) :

• No more free movement of goods between EU and UK – physical borders with customs inspections

• No more common foreign trade policy

• Different regulatory framework

Implications of leaving the EU Customs Union (‘no deal’ scenario)

Brexit Customs & Trade implications

EU Customs territory - current EU Customs territory – post Brexit


EU Non - EU

ownduty rate

What does it actually mean?

Brexit Customs & Trade implications

The departure of the UK from the EU has important customs implications (unless alternative (temporary?) customs arrangements are agreed as proposed in the Withdrawal Agreement)• Import and export clearance requirements at both EU and UK-side

• Import duties apply (UK national duty rate?)

• Registration formalities in both the UK and the EU (e.g., Economic Operator Registration and Identification – EORI)

• Additional regulatory requirements on both sides


Ten specific examples of Customs impacts

Import / export formalities

02

01 Customs value06

03

07

08

Increased duty (and service) cost

Systems & procedures

Customs responsibilities & liabilities between parties

Registrations & authorisations

04

05

09

10

Product classificationSimplifications & special procedures

Preferential origin Regulatory requirements


Manufacturing example

3. (Re-)export of goods from the UK to the EU and beyond: Customs formalities, non-tariff measures, export control and no-drawback rule

1. Import into the UK of materials from the EU and beyond: Customs formalities and tariff position

2. Manufacturing/Processing of goods in the UK: Inward and outward processing (from UK perspective)


Distribution example

1. Manufacturing of goods in Bangladesh:Preferential tariff arrangements

3. Global e-Commerce: Returned goods

2. UK Shipping/Warehousing:Customs status management and customs warehousing


What actions businesses could and should take

Make agreements on responsibility & liability

Reach out to suppliers / customers, anticipate by reviewing and modifying terms and conditions

Organise clearance process & support

Develop clearance procedures,secure broker support and agree on terms / communication process Registration

& license application

Prepare (and submit) registration and license applications where required / beneficial

Prepare systems & data

Consider implementation of customs & trade support systems, review and upgrade customs master data quality

Invest in dedicated talent, build knowledge and assign roles and responsibilities

Obtain insight

Look at potential Brexit exposure against a range of scenarios, including no-deal

Build customs & trade knowledge

Brexit – The UK perspectiveNigel Pickard 26 November 2018


Overview

Brexit

Uncertainty• Brexit will change the conditions in which businesses operate • Nature and timing of these changes is not known • Potential for significant changes in the conditions for movement of goods,

services and people• Organisations should assess their level of exposure

Action or Reaction• Ongoing uncertainty has discouraged action for some businesses• 79% of CFOs expect the business environment to be worse due to Brexit• Ongoing risk of ‘no deal’ means now is the time to act• Unlikely to be clarity on future relationship for some time

Prepare for change• Understand potential areas of exposure and risk• Movement of goods, supply of services and access to workforce• Plan for potential disruption• Opportunities as well as risks?


Assess the impacts and be ready for change

What can business do to prepare?

Identify Brexit issues, scenarios and business specific considerations

Gather data and engage stakeholders from affected business units

Analyse impact of most likely scenarios (including scenario of most change)

Identify ‘red flags’ – issues that will have consequences for business continuity or key investment decisions

Identify contingency requirements

Detailed planning for organisational and operational changes –timing, resources and decision trigger points

Implement operational and organisational changes

Review forward business strategy to align to new trade and immigration conditions

Brexit Impact Assessment Readiness Planning and Actions

UNDERSTANDEvaluate situation

ASSESSConduct analysis

PLANFormulate strategy

ACTImplement


Focusing on the areas that matter

Brexit: what are the business issues?

IMPACT ASSESSMENT READINESS

Understanding where critical parts and components are sourced from and how movement of those products could be impacted

Testing operational continuity in the case of a delay to goods arriving on site

Assessing the number of EU nationals in the workforce and considering how they could be affected post Brexit

Modelling different workforce scenarios to understand where short term availability and cost factors may influence operational continuity and cost

Considering the volume of customs declarations that may be required

Testing systems capabilities and identifying requirements for new or upgraded systems

Trade / supply chain

People / workforce

Technology / systems and data

Brexit - Legal/Contractual AspectsJürgen Egger | Anne-Line Servaes26 November 2018


Agenda

Brexit

clauses

2Practical

cases

3Legal

impact

1


Overview

Legal impact

Impact of the withdrawal on the legal framework in

the UK

Legal framework

governing the withdrawal of the UK from

the EU

Withdrawal based on article 50 TFEU –the so-called ‘Constitutional Dimension’ (incl. possible scenarios for the future relationship –what are the possibilities within the existing legal framework?)

Immediate consequences of Brexit on market participants in the EU-27 and the UK.

Long-term legal consequences due to the disintegration of the markets.

Consequences for market participants’ existing and future contracts in the UK.


Legal consequences

Legal impact

Applicable legislation

Direct effect

• Application of EU legislation stops – (legal) persons may no longer

invoke the applicability of that EU legislation.

• Need for a UK national legislation to avoid legal void: UK will implement

EU acquis.

No direct effect

• Application of EU legislation stops – UK no longer has obligations

towards the EU.

• Existing national legislation may change in view of own priorities and in

view of the agreement concerning the future relationship.

Applicable case law

Jurisprudence of the European Court of Justice

• Bound by the pre-Brexit judgments – engagement expressed by the UK.

• New jurisprudence: application in function of the applicable legislation

post-Brexit.


Importance of thorough preparation

Legal impact of Brexit

Generally, agreements cannot be terminated by invoking ‘force majeure’ if the circumstances have changed since Brexit.

BUT:

• ‘force majeure’ could be applied in specific situations, if there is an impossibility to execute an agreement

• unforeseeable circumstances could lead to a disruption of the contractual relationship

• e.g. supplier agreement with international element

• What legal framework will be applicable to agreements? Implications on choice of law / choice-of-court / recognition and execution of judgments

• UK: apply own rules England / Wales / Scotland / Northern-Ireland: different legal frameworks

• Implications for free movement? e.g. financial: import duties/customs? Or, e.g.: human resources: visa requirements?

• Territorial: scope of an agreement?

Brexit is not ‘force majeure’

Certain agreements are a potential source of conflict

Risks inherent to Brexit

Brexit Readiness Conference© Deloitte Belgium 34Brexit Readiness Conference 34

Existing agreements New agreements

Applicable law

• Today: Rome I (universal application) choice-of-law of the parties

• After Brexit: Rome I may possibly remain applicable as no reciprocity is needed to be applicable

Applicable law

• Rome I remains applicable after Brexit: recommended to include choice-of-law clause in agreement

• If not, rely on rules of Belgian International Private Law

Competence of courts

• Today: Brussels I bis Regulation

• After Brexit: UK is no longer a Member State will the choice-of-court survive?

• Brussel I bis Regulation will be terminated in case of ‘no deal’ or hard Brexit

Choice-of-court to be determined based on Belgian International Private Law

• Unsure what will happen when parties did not include an explicit choice-of-court

Competence of courts

• Today: Brussels I bis regulation

• After Brexit: UK is no longer a member state destiny of choice-of-court is

uncertain and dependent upon the Brexit ‘deal’

• Brussel I bis Regulation will no longer be applicable in case of ‘no deal’ or hard Brexit uncertain what will happen when parties have not included an explicit

choice-of-court clause

• In principle, the UK will join the Hague Treaty 2005

• Include a choice-of-court clause and perhaps limit it in time (until Brexit and as of Brexit)?

Recognition and execution

• Today: Brussel I bis Regulation

• After Brexit: UK is no longer a Member State will the EU still recognise and

execute UK judgments, and vice versa?

• Uncertainty on rendered but not yet executed judgments, e.g. UK judge still member of the EU at the time of rendering judgment, however not anymore at the time of execution which rules will apply in such situation?

Recognition and execution

• Today: Brussels I bis Regulation

• After Brexit: UK is no longer a Member State will the EU still recognise and

execute UK judgments, and vice versa? In the interest of legal certainty: arbitration (Treaty of New York)


Brexit clauses

Renegotiation clause Anticipate the uncertainty concerning contractual consequences of Brexit

Continuation clause Anticipate the continuation of the agreement after Brexit

Liability clauseClause to limit the liability of parties in the case they would not be able to meet (certain) contractual obligations after Brexit without being exposed to legal and/or contractual sanctions

Unforeseeable circumstances Anticipate the disruption of the contractual relationship due to Brexit

Exchange rate clause Anticipate currency changes by valuing currencies at a given date or moment, to limit / appoint the risk of change of value to a specific contracting party

Territorial scope Anticipate a dynamic interpretation of the term ‘EU’ by referring explicitly to the UK

Choice-of-law / Choice-of-courtAnticipate post-Brexit discussions in case of conflicts on the competent court and applicable law

Arbitration clauseEstablish legal certainty on dispute settlement by referring the resolution of a possible dispute to an arbitrator


• Important to define ‘Brexit’

• As of transition period or only as of the termination of the transition period? = moment the clause well enter into force

“This clause will only apply after the withdrawal of the United Kingdom from the European Union, even if a transition agreement has been concluded (“Brexit”).”

Brexit clauses


Brexit clauses

Concessions to the uncertainty concerning the contractual consequences of Brexit, by introducing:

• E.g. a renegotiation clause

• E.g. unforeseeable circumstances concessions for the uncertainty

concerning consequences of Brexit

• Risk of interpretation (vulnerable character of clause)

“If the United Kingdom, or another member state of the EU, withdraws from the EU and such a withdrawal will likely have a deterrent effect on the activities that are considered in light of this Agreement or on the rights and/or obligations of one of both Parties in light thereof, the Parties will negotiate in good faith on an adjustment or amendment of the conditions of this Agreements, if necessary to retain the rights of each Party in this regard, since such rights were reasonably considered by the Parties as of the start date. For clarity’s sake: a withdrawal from the EU by the United Kingdom does not qualify as force majeure. If the Parties cannot reach a renewed agreement, the Parties may terminate the Agreement without consequences.”

“In case unforeseen circumstances present themselves as a consequence of Brexit, which cannot be prevented by any Party and that impair the economic basis of the Agreement to the detriment of one of the parties involved, then those parties together must agree upon the necessary alterations of the order. [If the parties do not reach an agreement then together they appoint an expert. That expert may eventually impose damages upon one of the parties, taking into account the justified expenses.]”


Brexit clauses

• E.g. a continuation clause


“Except as stipulated in this provision and notwithstanding any other provision in this contract, Brexit will not have as a consequence:

a) the termination of this Agreement; or

b) the alteration or the rendering invalid of a condition of, the execution or the excusing of performances as described within this Agreement; or

c) that a Party can unilaterally alter or terminate the Agreement.

Under reservation of provisions providing otherwise and to the extent that as a consequence of Brexit:

a) Parties would not be allowed to (partly) execute this Agreement due to the applicable legislation or regulation; and/or

b) Parties would be exposed to any legal or regulatory sanction as a consequence of the execution of this Agreement (or a part of it), this Agreement or that part of the Agreement which cannot be executed.”


Brexit clauses

• e.g. a clause to limit the liability of parties in case that after Brexit they would no longer be able to meet (certain) contractual obligations without being exposed to legal and/or contractual sanctions.

• e.g. unable to meet a delivery period due to customs control because of Brexit

• May also be solved by depicting the delivery period as an indication (difficult for B2C)

• e.g. certain obligations contrary to UK regulations after Brexit


“If parties cannot meet the delivery period as agreed upon in the Agreement due to the consequences of Brexit, then they cannot be subject to sanctions and/or damages.”


Brexit clauses

• e.g. exchange rate clause

• Currency will be valued at a given date or moment, e.g. the day of Brexit

• Change of value may have a significant impact on the turnover of Parties

• After Brexit, the British pound and/or the euro may experience major changes of value

“Debt-claims expressed in another currency than EURO, will at their transfer be booked at the exchange rate as communicated by the European Central Bank. Every difference in exchange rate is charged to or in the benefit of (…) and will as such be booked in credit or in debit of the current account. The exchange rate risk will consequently only be born by (…).”


Brexit clauses

• e.g. define the territorial scope of an agreement “The Agreement concerns the EU, including the UK.”


Brexit clauses

• e.g. choice-of-law and/or choice-of-court of the Parties

• If this is explicitly determined, there is a bigger chance that this will remain valid after the Brexit

“This Agreement is governed by Belgian law. The Belgian courts of the judicial district West-Vlaanderen, Kortrijk, are competent to rule on disputes arising out of this Agreement.”


Brexit clauses

• E.g. an arbitration clause

• More legal certainty

• E.g. Cepani

“All disputes arising out of or regarding this agreement, will be definitively settled according to the Arbitration regulation of CEPANI, by one or more arbitrators who are appointed in accordance with this regulation. The arbitration panel will exist of three arbitrators. The location of the arbitration is (…). The language of the arbitration is (…). The applicable legislation is (…).”

“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”


Today

Within EU = free trade applies within the EU so this means that no taxes or duties will be charged when trading with the UK.

Trade mark protected toy A+, CE – marked, transport by or on behalf of A in accordance with incoterm DDP

Case I : Delivery of goods – toys

Brexit

Post Brexit

Export outside of EU = Possible impact on prices or payment provisions:• Introduction of tariffs by the UK on cross – border

trade, fluctuations in the exchange rates between Pound Sterling, the Euro and other currencies, …

What to do

• Exchange rate clause• Renegotiation clause

INVOICE

A B



Today

Goods under EU trade mark or community designs (applicable within the EU)


Post Brexit

No deal: Trademarks and designs might need to be registered again at the UK Intellectual Property Office due to the fact that they will not be automatically recognized anymore as a registered trademark or design in the UK.

Withdrawal agreement: • Automatic registration as a UK trade mark or design• Upon renewal of the EU trade mark or design, renewal of UK trade mark or design to

be taken into account• Ongoing EU trade mark applications will not provide protection within the UK (if

approved after the transition period) => separate UK application will be necessary

What to do

For your core brands:consider filing for UK Trademarks and UK registered designs + include them in licenses

INVOICE

A B

Brexit


Today

Applicable product requirements (CE – marked) and licenses and permits



Brexit

Post Brexit

Without common rules, a firm would have to go through the compliance testing process twice in order to sell products both in the UK and the EU. This would make the production process very expensive.

What to do

• Multiple testing processes• Extra costs

INVOICE

A B


Today

Applicable law:• Rome I

Competence of courts:• Brussel Ibis



Brexit

Post Brexit

Applicable law:• Rome I may still be applicable

Competence of courts:• Brussel Ibis will no longer be applicable

in case of ‘no deal’ or hard Brexit

What to do

• Choice-of-law clause• Choice-of-court clause• Arbitration clause

INVOICE

A B


Today

Transfer of personal data within the EU in accordance with GDPR

Delivery of (digital) services containing (personal) data flows (e.g. cloud services, Saas – solutions)

Case II : purchase of services

Brexit

Post Brexit

Transfer of personal data outside of the EU requires additional guarantees from the processor (e.g. EU contractual clauses, binding

corporate rules or explicit consent of the data subject)

• As long as no adequacy decision has been made by the European Commission with regard to the UK (could take up to 2 years)

What to do

Identify an alternative legal basis: e.g. standard contractual clauses

INVOICE

A B

Brexit - Cross-border Employment AspectsFilip Van Overmeiren | Koen Beckers26 November 2018


Identify an alternative legal basis: e.g. standard contractual clauses

Brexit readiness : responding to the impact on your People

Talent Retention

Understand the impact of Brexit on current talent pool and their personal situations

Offer cross-border mobility and assignments as a motivator

Provide tailor-made solutions and step-by-step guidance

Potential impact on reward strategy

Talent Development

Trainee & high potential programmes

• Cross-border & HQ traineeships

Attracting New Talent

Impact on the available talent pool, both in the EU and in the UK

Additional formalities and procedures when hiring & firing

Rethinking reward

1

Attracting talent

2

Talent retention

Talent development

3

1 2 3


No Deal Impact readiness

Impact

Social Security

Changes to social security legislation could have an impact on not only the cost of certain assignments, but also on the legal benefits to which the employees are entitled. Understanding these changes and their implications for your workforce and their families will be essential in order to communicate clearly and help them through the changes of Brexit.

Immigration

Changes to immigration policy (both actual and feared) may rapidly change the available talent pool, and could affect current staff. Understanding this legislation and its implications for your workforce will be key to effective workforce planning. Mobility

Changes to immigration legislation, market and talent demands could make workforce mobility more important but more difficult and expensive than ever before.

Understanding the current workforce

It is important to be able to gather data, plan and assess the impact on the labour force. Not just once, but with the uncertainty of negotiations, on an on-going basis.

Income tax

Changes to immigration and social security legislation could have an impact on the tax and payroll requirements for a mobile population. Although the impact may be minor, creating awareness is needed in view of effective workforce planning and budgeting.


Some numbers

Impact

In the EU, up to 1.200.000 jobs could be lost, of which 42.000 jobs in Belgium.

A hard Brexit could cost UK businesses up to £65.5 billion per year and up to 500.000 jobs;

70% UK employers have had difficulties filling vacant positions and 2/5 have seen increasing difficulties in the past year

Number of EU nationals working in the UK dropping rapidly recently (132,000 fewer EU nationals than last year)

3.2 million EU citizens currently reside in the UK (some 30,000 estimated to be Belgians) and 1.2 million UK citizens in the EU (nearly 25,000 living in Belgium);

Sources: https://ec.europa.eu and https://www.ons.gov.uk/


ImpactDeal or no deal?



Impact



Impact

Immigration

Free movement remains in place until 31/12/2020

UK nationals residing in the EU and EU nationals residing in the UK + their respective family members (including extensive family reunification rights);

• can continue to live, work and study in EU/UK do after Brexit;• will receive permanent resident status in EU/UK after legally residing 5 years if they entered the EU/UK before end of transition period

(until 31/12/2020)

Residence rights procedures (mandatory registration or declaratory systems) to be smooth and simple (UK registration for residency document up to 30 June 2021)

Social security

EU rules on social security coordination continue to apply (applicable legislation, aggregation of periods, export of benefits)

Citizens maintain rights to healthcare, pensions and other social security benefits

Current cross-border rules (including with EFTA) continue to apply in case of agreements between EU–UK–EFTA



Impact

Employees - Self-employed

Professional qualifications will remain recognised;

Current employee ‘free movement’ rights remain recognised (equal treatment as to employment terms and conditions, social and tax advantages, collective rights, right of their children to access education, etc);

Frontier workers/self-employed’s current rights will also be protected

Business (and holiday) travel: free entry on basis of passport or ID card until 31/12/2020

Monitoring by European Commission and “UK Authority”

Interpretation of the Citizens’ Rights: UK and EU country courts + European Court of Justice (until 31/12/2028)


First “no deal” option: Transition with “EU Settlement Scheme”

Impact – Immigration

1 January 2021:

New Immigration

System

Cut off date for residency rights.

New arrivals are subject to a new immigration system

No EU approach

Country to country approach (no obligation)

Transition Period:

until 31 Dec 2020

EU nationals arriving in the UK after 29 March 2019 will be required to registerif they intend to stay beyond 3 months.

They will be permitted to stay in the UK until such time as they meet the 5 year residence period to qualify for Settled Status.

UK’s “EU Settlement

Scheme”

EU nationals who are permanent residents (min 5 years) of the UK will be able to apply for Settled Status under UK law.

Temporary Status for those resident for less than 5 years, enabling them to reach settled status.

Procedures should be smooth and simple

Business travellers visas?

Mar 2019:

UK leaves EU

No immigration deadline on 29/3/2019: individuals who are residing in the UK before 29 March 2019 can apply for settled or temporary status until 30 June 2021.


Impact – Immigration

Other “no deal” options

New Immigration

System

New arrivals are subject to a new immigration system

No EU approach

Country to country approach (no obligation)

Mar 2019:

UK leaves EU

Immigration deadline on 29/3/2019:

- Temporary visa status until new immigration system is in place (unlikely)

- New immigration system with work and residence permits (very unlikely)


Mobility cost, new employer obligations and employee welfare

Impact – Social Security

Challenges

• From uniform EU rules to bilateral treaties (if any) with different rules (duration of secondments, possibility of simultaneous employment, …) per country;

• Social security benefits covered vary per treaty (alternative coverage to be foreseen);

• Certain countries currently have no social security treaty, double coverage (additional costs/admin) cannot be excluded.

IndividualEU Countries

UK

BilateralAgreements,

if any


Impact – Social Security

Countries with agreement

Austria Belgium

Croatia Cyprus

Denmark Finland

France Germany

Iceland Ireland

Italy Malta

Norway Portugal

Slovenia Spain

Sweden Switzerland

Countries without agreement

Bulgaria Czech Republic

Estonia Greece

Hungary Latvia

Liechtenstein Lithuania

Poland Romania

Slovakia

Points of attention

• Agreements have differing rules;

• Certain agreements apply only to nationals, other to all residents or insured employees;

• No agreement: double coverage (+ registration & payroll admin)


Payroll, Individual taxation and Employment law

Impact – Other Areas

Payroll & Individual taxation

• Payroll processes will need to be adapted taking into account new social security and immigration legislation;

• Additional compliance and registration formalities;

• Limited impact on individual taxation and tax returns (note: European non-discrimination case law will no longer apply)

Attention points

Employment Law

• Review of existing contracts;

• Adaptation of hiring procedures;

• Discussion on applicable legislation possible: important to map the impact in advance (impact on minimum working conditions, termination entitlements …)

Employment law

• Steps to transfer employment

• Comparative employment law rights

• Works Council requirements

• Enforcement of restrictions

• Termination rules

Payroll

• Requirement for new payroll registrations

• Vendor capabilities

• Assessment of current internal payroll system capability

• Establishment of new payrolls


1. Immigration: will most likely be able to enter UK as business visitors (asdrivers delivering goods on an international route) without any permits. Incase they would reside for a longer period (6 months), a residence permitwould become required

2. Social Security: Belgian truck drivers will remain subject to Belgiansocial security. Potential double liability for non-Belgian truck drivers (doublepayroll)

3. Driving licences: If the European driving license would no longer bevalid, the truck drivers will most likely need to request an internationaldriving license (if available in their country) in order to legally drive in theUK

What issues would a Belgian family-owned trucking company face, whose drivers frequently travel between the EU and the UK?

Impact – Case Study


Employers – mobility processes

Understand objectives

Compliance

• HR processes and record/tracking systems

• RTW checks

Registration requirements

• Individual circumstance assessment

• Application support

Communications

• Brexit timelines• Available support• Action required• Employee portal

Strategy

• Brexit impact analysis –future workforce

• Employee seminar (Q&A)• Employee surgeries (face to

face support)

Streamlining processes Consistency of messageReadiness for new compliance

requirements


Conclusion

Brexit will have an important impact on your People, but this dimension is unlikely to drive any decisions;

Mapping the impact of Brexit and communicatingclearly with your People will be essential (immigration & social security);

Preparation and adaptation of mobility management is part of the solution;

Brexit - VAT AspectsDaniel Lyons | Liesbet Nevelsteen26 November 2018


Background

A “European” Tax

• Principal VAT Directive

• The role of the Commission (including infraction proceedings)

• The role of the CJEU

A Critically Important Tax

• 2018/19 VAT Revenues in UK – GBP 132 billion

• 2018/19 Total Tax Revenues in UK – GBP 700 billionVAT


Timetables for Change

Deal

> No change during implementation period

> Most change immediately afterwards

> Unique position of Northern Ireland

> Four years at risk of possible infraction proceedings

No Deal

> All changes at midnight CET (11pm GMT), 29 March 2019


An Opportunity and a Few Challenges…

Challenges• Cost implications of amending law

• Cost implications of extra administration

• Loss of access to special schemes, etc.

OpportunityFreedom to amend certain aspects of UK VAT law •

Actually quite limited with respect to revenues •


“Dispatches and acquisitions” vs. “exports and imports”

Northern Ireland “backstop”

Compliance obligations such as Intrastat and EC sales lists, refund claims, MTD

“Postponed” accounting

Distance sales

Supply with installation

Simplification measures such as Triangulation, Call-off stock, etc.

Goods

What changes – From a UK Perspective

Potential VAT cash flow impact

Invoice Goods

BELGIUM

UK

Invoice 1 Invoice 2

GoodsFrench

Supplier

Belgian

Intermediary

UK

Customer


Simplification measures such as Triangulation, Call-off stock, etc.

VAT registration

impact


Services

What changes – From a UK Perspective

Financial services

• VAT treatment with non-UK counterparties

• VAT Consequences of Restructuring

Electronically supplied services

• The “Mini One Stop Shop”

Tour operators

The VAT portal


Goods - Services

What changes – From an EU Perspective


Northern Ireland “backstop”

Compliance obligations such as Intrastat and EC sales lists, refund claims, etc.

“Direct VAT registration” vs. “Fiscal representation” and related impact on VAT treatment

Distance sales, Supply with installation, Simplification measures, etc.

MOSS, Financial services, Tour operators, etc.

Certified Taxpayer Status (CTP)


What To Do?

Prepare for “No Deal” or “Most Change”

Consider system, master data and process changes ASAP

Make sure VAT and Business people talk to each other

Brexit - Business Location ConsiderationsPamela van Kruijsdijk26 November 2018


What is your company’s context?

I have a location in the UK and want to stay

I’m there but may need to leave

I’m not there and want/need to move in

I’m not there and don’t need to move in


Post-Brexit disruption expected

I have a location in the

UK and want to stay • Prepare to lean-size

• Identify/secure most critical staff

• Re-allocate processes across locations(if your business has a wider EU presence)

• Renegotiate property contracts


Relocation excercise

I’m there but may

need to leaveMain preferred alternative locations for financial services businesses

• Amsterdam

• Dublin

• Frankfurt

• Luxembourg

• Paris

• Madrid

• Warsaw


Relocation excercise

I’m not there and

want/need to move in

East of England

London

East Midlands

Yorkshire and

the Humber

North EastNorthern Ireland

North West

Wales

West Midlands

South WestSouth East

Scotland


Takeaways

Each company needs its own specific Brexit context and location strategy

What you want to do determines where you need to be…

Tough choices may need to be made

Location decisions have lasting impacts:

what is YOUR Brexit location strategy?

Brexit - Corporate Tax & Withholding Tax AspectsEric von Frenckell26 November 2018


Agenda

Latest status

Withholding taxes

• EU Directives no longer apply

• Impact on group structures

• Operating arrangements and corporate structure

• US financing and treaty access

Regulatory driven restructuring: Exit charges and valuations

Corporate reorganisations and transfer pricing


During the transition period (ending on 31 December 2020)• The EU will treat the UK as if it were a Member State with the exception of participation in the EU institutions and governance

structures

• EU law will continue to apply during this period to and in the UK as if it were a Member State and any changes in EU law willautomatically apply to and in the UK

No change

After the transition period (ending on 31 December 2020)• Still unclear at this stage. This will depend on the EU and UK’s agreement on the Future Relationship (which will be negotiated after

March 2019)

• The UK’s starting position is to adopt all existing EU law into UK law

• This will create stability until and if the UK decides to change its tax laws in the future

• Existing tax reliefs and exemptions currently applicable to transactions between the UK and Belgian entities (and entities from other EU Member States) might cease to apply if and when the UK decides to amend its legislation

Meaning that initial stability could potentially be followed by loss of existing tax reliefs and exemptions

Corporate tax: Latest status

If the draft Withdrawal Agreement of 14 November 2018 is approved:

If the Withdrawal Agreement is not approved and we encounter a hard Brexit:


Withholding taxes: EU Directives no longer apply

Dividends

Consequences

When the Directives no longer apply:• Dividends or other profit distributions paid between EU entities and the UK may incur a withholding tax (WHT) cost• Interest or royalties paid between qualifying EU entities and the UK may incur a WHT cost

Reliance will need to be placed on the Double Tax Treaties, leading to:• Potential WHT cost• Compliance obligations

Dividend distributions between UK and Belgium will be unaffected:• UK domestic law does not impose a WHT• Belgium extended the application of the Parent Subsidiary Directive to treaty countries, including an exchange of

information clause (which is the case in the Belgian-UK Double Tax Treaty)

Interest and royalties payments between UK and Belgium generally unaffected:• UK domestic law imposes a 20% WHT and Belgian domestic law a 30% WHT• But the possibility exists to claim a 0% rate based on the Belgian-UK Double Tax Treaty

EU

Company

UK

InterestRoyalties

EU

Company

UK

Parent-Subsidiary Directive Interest & Royalties Directive


Withholding taxes: Impact on group structures

Foreign parent

Portugal

UK

France

Netherlands Austria

ItalyGermany Spain

WHT rates

DomesticDividend: 0%Interest: 25% / 35%Royalties: 25% / 35%

TreatyDividend: 10% / 15%Interest: 10%Royalties: 5%

WHT rates

DomesticDividend: 19%Interest: 19%Royalties: 19%

TreatyDividend: 0%Interest: 0%Royalties: 0%

WHT rates



WHT rates

DomesticDividend: 27.5% Interest: 0% / 27.5%Royalties: 20%

TreatyDividend: 5%Interest: 0%Royalties: 0% / 10%

WHT rates



WHT rates

DomesticDividend: 26%Interest: 26%Royalties: 22.5%


WHT rates

DomesticDividend: 30%Interest: 0% Royalties: 33.33%


Sweden

WHT rates

DomesticDividend: 0% / 30%Interest: 0%Royalties: 0%

TreatyDividend: 0% / 5% / 10%Interest: 0%Royalties: 0%

Switzerland

WHT rates

DomesticDividend: 35%Interest: 0% / 35%Royalties: 0%


Key

Blue:Lowest rate available across domestic and treaty provisions

Black: Other rate

Belgium

WHT rates

DomesticDividend: 0% / 30%Interest: 30%Royalties: 30%

TreatyDividend: 0% / 10%Interest: 0% / 10%Royalties: 0%


Withholding taxes: Operating arrangements and corporate structure

As at 29 March 2019(or 31 December 2020 if transition

period goes ahead)

Restructured group –key points to considerPost Brexit

• EU Directives no longer apply

− No application of Parent-Subsidiary Directive

− No application of Interest & Royalties Directive

• Reverting to Double Tax Treaties may trigger a WHT exposure

Points to consider

• Timing of dividend payments

• Prepaying royalties/interest

• Restructuring of shareholdings

− Timing of restructuring and treaty shopping provisions – Principal Purpose Test

Dividend flow

Royalty flow

Interest

% Relevant treaty rate

Principal Co EMEA

(UK)

ParentCo

Italy Germany

0%

0%0%

8%

0%

IP

Portugal

Belgium

ParentCo

Italy Germany

Belgium

5%

10%10%8%

IP

5%

Principal Co EMEA

(UK)

Portugal

0%


Withholding taxes: US financing and treaty access

PLC Parent Co(UK Listed)

Ireland Luxembourg US

Interest free loan

Interest bearing loan

30% WHT on interest

PLC Parent Co(UK Listed)

Ireland UK US

Interest free loan

Interest bearing loan

As at 29 March 2019(or 31 December 2020 if transition

period goes ahead)

Restructured group –key points to considerPost Brexit

• US – LUX Double Tax Treaty LOB derivative benefits test no longer met, triggering US domestic WHT

• Plc no longer EU entity and so Art. 24(4)(a) requirements not met

Points to consider

• Do restructuring options address the US WHT exposure while managing other risks?

• US tax reform – anti-hybrid rules impact

• EU State Aid – UK Finance Company partial exemption rules subject to challenge – “Cadbury” defence impact

Dividend flow

Royalty flow

Interest


Regulatory driven restructuring: Exit charges and valuations

UK Co

Asset transfers

Certain industries require businesses to be “established” in the EU (e.g. Life Sciences: Art 2 of Regulation No 726/2004 requires that Marketing Authorisation Holders are ‘established’ in the EU)

UK Co

EU CoEU

branch

Primary establishment

Secondary establishmentOr

UK Co

New arrangements

UK Co loses either the market permissions or the regulatory approval to contract directly

=> Terminate existing arrangements and enter into new contracts

EU Co

EU Co

Terminateold contract

EU Co

Newcontract

Option 1: Option 2:

MA MA

Post Brexit

• Will regulators/Member States accept Option 1?− CJEU case law is supportive

• Under Option 2, how to value the asset in question on transfer to EU Co? Is there an exit charge?− Higher of market value or arm’s length price− Market value ignores parties’ bargaining position

Post Brexit

• Is there a transfer of intangibles/value?

• Is a compensating payment due under OECD TP Guidelines Chapter 9 principles?


Corporate reorganisations and transfer pricing

Corporate restructurings

Today

• The EU Mergers Directive offers tax relief on cross-border reorganisations.

Post-Brexit

• The UK might create new law in the future, which could lead to increased tax costs for businesses undertaking merger transactions.

Transfer pricing

Today

• For inter-company transactions in multinational companies, taxpayers can rely on the EU Arbitration Convention.

Post-Brexit

• Increased uncertainty whether double taxation would be eliminated in case of TP adjustments.

• Advance Pricing Agreements and Mutual Agreement Procedures provided by Tax Treaties could be applied instead.

Closing considerations & Forward lookHerman Van Rompuy, former President of the European Council26 November 2018

Closing Piet Vandendriessche, CEO Deloitte Belgium26 November 2018

brexit readiness conference · 11/26/2018 · richard doherty, deloitte brexit programme...

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