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
Brexit Readiness Conference© Deloitte Belgium 4
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
Brexit Readiness Conference© Deloitte Belgium 5
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
Brexit Readiness Conference© Deloitte Belgium 6
Focusing on the areas that matter
Brexit: what are the business issues?
Trade / supply chain
People / workforce
Technology / systems and data
Brexit Readiness Conference© Deloitte Belgium 7
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
Brexit Readiness Conference© Deloitte Belgium 10
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
Brexit Readiness Conference© Deloitte Belgium 11
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
Brexit Readiness Conference© Deloitte Belgium 12
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’
Brexit Readiness Conference© Deloitte Belgium 13
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
Brexit Readiness Conference© Deloitte Belgium 14
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
Brexit Readiness Conference© Deloitte Belgium 17
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
Brexit Readiness Conference© Deloitte Belgium 18
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
Brexit Readiness Conference© Deloitte Belgium 19
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
Brexit Readiness Conference© Deloitte Belgium 20
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)
Brexit Readiness Conference© Deloitte Belgium 21
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
Brexit Readiness Conference© Deloitte Belgium 22
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
Brexit Readiness Conference© Deloitte Belgium 25
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?
Brexit Readiness Conference© Deloitte Belgium 26
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
Brexit Readiness Conference© Deloitte Belgium 27
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
Brexit Readiness Conference© Deloitte Belgium 30
Agenda
Brexit
clauses
2Practical
cases
3Legal
impact
1
Brexit Readiness Conference© Deloitte Belgium 31
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.
Brexit Readiness Conference© Deloitte Belgium 32
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.
Brexit Readiness Conference© Deloitte Belgium 33
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 Readiness Conference© Deloitte Belgium 35
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
Brexit Readiness Conference© Deloitte Belgium 36
• 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 Readiness Conference© Deloitte Belgium 37
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 Readiness Conference© Deloitte Belgium 38
Brexit clauses
• E.g. a continuation clause
• Risk of interpretation (vulnerable character of 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 Readiness Conference© Deloitte Belgium 39
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
• Risk of interpretation (vulnerable character of clause)
“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 Readiness Conference© Deloitte Belgium 40
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 Readiness Conference© Deloitte Belgium 41
Brexit clauses
• e.g. define the territorial scope of an agreement “The Agreement concerns the EU, including the UK.”
Brexit Readiness Conference© Deloitte Belgium 42
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 Readiness Conference© Deloitte Belgium 43
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.”
Brexit Readiness Conference© Deloitte Belgium 44
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
Brexit Readiness Conference© Deloitte Belgium 45
Case I : Delivery of goods – toys
Today
Goods under EU trade mark or community designs (applicable within the EU)
Trade mark protected toy A+, CE – marked, transport by or on behalf of A in accordance with incoterm DDP
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
Brexit Readiness Conference© Deloitte Belgium 46
Today
Applicable product requirements (CE – marked) and licenses and permits
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
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
Brexit Readiness Conference© Deloitte Belgium 47
Today
Applicable law:• Rome I
Competence of courts:• Brussel Ibis
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
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
Brexit Readiness Conference© Deloitte Belgium 48
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
Brexit Readiness Conference© Deloitte Belgium 51
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
Brexit Readiness Conference© Deloitte Belgium 52
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.
Brexit Readiness Conference© Deloitte Belgium 53
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/
Brexit Readiness Conference© Deloitte Belgium 54
ImpactDeal or no deal?
Brexit Readiness Conference© Deloitte Belgium 55
Withdrawal Agreement
Impact
Brexit Readiness Conference© Deloitte Belgium 56
Withdrawal Agreement
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
Brexit Readiness Conference© Deloitte Belgium 57
Withdrawal Agreement
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)
Brexit Readiness Conference© Deloitte Belgium 58
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.
Brexit Readiness Conference© Deloitte Belgium 59
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)
Brexit Readiness Conference© Deloitte Belgium 60
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
Brexit Readiness Conference© Deloitte Belgium 61
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)
Brexit Readiness Conference© Deloitte Belgium 62
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
Brexit Readiness Conference© Deloitte Belgium 63
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
Brexit Readiness Conference© Deloitte Belgium 64
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
Brexit Readiness Conference© Deloitte Belgium 65
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
Brexit Readiness Conference© Deloitte Belgium 68
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
Brexit Readiness Conference© Deloitte Belgium 69
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
Brexit Readiness Conference© Deloitte Belgium 70
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 •
Brexit Readiness Conference© Deloitte Belgium 71
“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
“Dispatches and acquisitions” vs. “exports and imports”
Simplification measures such as Triangulation, Call-off stock, etc.
VAT registration
impact
Brexit Readiness Conference© Deloitte Belgium 72
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
Brexit Readiness Conference© Deloitte Belgium 73
Goods - Services
What changes – From an EU Perspective
“Dispatches and acquisitions” vs. “exports and imports”
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)
Brexit Readiness Conference© Deloitte Belgium 74
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
Brexit Readiness Conference© Deloitte Belgium 77
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
Brexit Readiness Conference© Deloitte Belgium 78
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
Brexit Readiness Conference© Deloitte Belgium 79
Relocation excercise
I’m there but may
need to leaveMain preferred alternative locations for financial services businesses
• Amsterdam
• Dublin
• Frankfurt
• Luxembourg
• Paris
• Madrid
• Warsaw
Brexit Readiness Conference© Deloitte Belgium 80
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
Brexit Readiness Conference© Deloitte Belgium 81
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
Brexit Readiness Conference© Deloitte Belgium 84
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
Brexit Readiness Conference© Deloitte Belgium 85
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:
Brexit Readiness Conference© Deloitte Belgium 86
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
Brexit Readiness Conference© Deloitte Belgium 87
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
DomesticDividend: 15%Interest: 0%Royalties: 0%
TreatyDividend: 0%Interest: 0%Royalties: 0%
WHT rates
DomesticDividend: 27.5% Interest: 0% / 27.5%Royalties: 20%
TreatyDividend: 5%Interest: 0%Royalties: 0% / 10%
WHT rates
DomesticDividend: 25%Interest: 0%Royalties: 15%
TreatyDividend: 5%Interest: 0%Royalties: 0%
WHT rates
DomesticDividend: 26%Interest: 26%Royalties: 22.5%
TreatyDividend: 5%Interest: 10%Royalties: 8%
WHT rates
DomesticDividend: 30%Interest: 0% Royalties: 33.33%
TreatyDividend: 0%Interest: 0%Royalties: 0%
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%
TreatyDividend: 0%Interest: 0%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%
Brexit Readiness Conference© Deloitte Belgium 88
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%
Brexit Readiness Conference© Deloitte Belgium 89
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
Brexit Readiness Conference© Deloitte Belgium 90
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?
Brexit Readiness Conference© Deloitte Belgium 91
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