HM Insights

What will the end of Brexit mean in practice for UK businesses trading internationally in the EU and beyond?

On 31 December 2020 the transition period relating to the UK's exit from the European Union will end. There is no trade deal yet in place between the UK and the EU. Some trade arrangements are in place, for example with Japan. The US election may have a significant impact upon UK/US trade policy. UK business remains subject to short notice restrictions and significant economic uncertainties due to the ongoing pandemic.

There is uncertainty. But it remains possible for businesses to mitigate risk by undertaking some forward planning and by considering what they may need to do and making preparations.

Key areas where consideration of the end of the transition period include the following.

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Personal data

If you are dealing in personal data relating to EU citizens, that is, data from which living individuals can be identified, then it is highly recommended that you take steps now to ensure that you will be compliant whatever happens.

The EU retains a list of countries that are deemed adequate as regards the state of their data protection laws, which can give business a degree of comfort when dealing in cross-border data transfers. Neither the UK nor the US are on this list, and it is highly unlikely that an adequacy decision relating to the UK will be with us before the end of the year. This means that businesses should have in place contractual safeguards which are adequate for EU purposes when dealing with EU citizen personal data, including under processing contracts, in their privacy policies, and within their supplier arrangements.

Also, the GDPR requires that those processing EU citizen personal data outwith the EU have an appointed representative within the EU.

Tariffs and duties

Without a deal in place with the EU, the UK's trade with EU member states will default onto WTO rules governing tariffs and duties. The UK will also no longer fall within the scope of trade deals agreed with third countries at EU level, again falling back onto WTO rules. The UK has, however, already begun to put in place some of its own arrangements, notably with Japan.

All of this will affect the costs of your customers acquiring products from you, and the prices you have to charge to your customers. It will also have impact upon accounting and payment arrangements with governmental authorities, documentation which will have to accompany shipments (and as such documentation business will need to collect from its supply chain), timescales for contractual performance and the terms of contracts themselves.

Business will need to examine their supply chains and customer contracts and deal with renegotiation now if they are to become uneconomical, impractical or impossible to perform. Arrangements such as deferment facilities and such like are likely to become more prevalent.

Customs procedures

When the transition period expires at the end of the year, the provisions which allow for seamless cross-border trade between the UK and the EU will also disappear. This will bring with it delays, greater compliance requirements and practical difficulties.

Many businesses rely upon ready availability of products in their supply chain and many use "as required" ordering. If the possible changes arising from the UK's exit have not yet been factored into business planning, it is imperative that an evaluation in this respect is now undertaken. This is particularly the case where supply and delivery chains concern perishable goods, such as food and drink.

A physical presence

Continuing some business activities in relation to the EU may require a physical presence to be maintained within the EU. Up until the end of 2020, that requirement is likely to be satisfied by the retention of a UK office, however beyond the end of the year as the UK will be fully out of the EU that may no longer be sufficient.

This is likely to impact upon those providing regulated services within or in relation to the EU, such as trade mark attorneys, accountants providing audit services for EU entities, those dealing in EU citizen personal data, and sectors such as financial services, pharmaceuticals and medical devices. If a business has not yet conducted a check to see if they require some sort of an EU presence, from a physical office to a representative, it is strongly advised that this is addressed, and soon.

If an EU entity requires formation, whilst that itself is a simple matter, it brings with it subsidiary concerns relating to management arrangements, taxation and corporate governance. Fitting a new entity within an existing corporate group in a proper and effective manner will would also need to be addressed.

Taxation and reporting considerations

The last three years have seen a significant growth in relation to taxation and reporting requirements, applicable to businesses trading across borders. These should be considered and factored into any Brexit planning. Businesses are likely to need to update their tax avoidance and tax evasion prevention policies, and new initiatives such as DAC6 transaction reporting, soon to come into practical effect in the UK, will need to be managed.

Rights management and enforcement

Up until the end of the year, businesses will still enjoy the benefit of European registered trademarks and European-level customs enforcement procedures, and the rights provided through existing trade in the EU marketplace. However, there will be some changes following the end of the year. Prior use of a mark in the UK may no longer be relevant for EU-related proceedings. EU registered trademarks will no longer cover the UK, although a corresponding right in the UK should be provided. EU-level customs registration won't cover the UK. European patent rights, on the other hand, due to the fact they are created under a separate European convention, will be largely unaffected. The same may not be the case for design rights, both registered and unregistered.

As such, if businesses have not yet evaluated the strength of their rights portfolios and enforcement strategies post-Brexit, and undertaken remedial actions to ensure that they remain strong, they should do so now.

Workforce mobility

Many companies use a variety of employees from different EU member states. The departure of the UK from the EU will have significant impact upon their ability to move from the EU into the UK, as rules around freedom of movement and freedom of establishment will no longer apply. Subsidiary points surrounding security, vetting, employment data, remuneration and benefits, and taxation will also require re-evaluation.

Sanctions and trade regulation

The UK's trade control regime has already departed from the EU's position and going forward businesses are likely to have to undertake more diligent checks on proposed transactions and matters. Also, such activities will need to be considered in the context of the US's post-election approach to trade regulation. If businesses have not yet implemented proper and diligent controls which account for the moving landscape of sanctions and trade restrictions, they must do so now in order to avoid potential liability and reputational damage.

We're here to help

In short, businesses need to be prepared, take advice, and manage risk. To speak with any of our international trade team please get in touch.

Jamie Watt | 0131 247 2510

Scott Kerr |  0774 087 7606

Jill Fryer | 0779 630 7837

David Kaye0771 104 8838

Peter McLuckie | 07870 484124

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