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Brexit - the impacts


Brexit - the impacts


Content

1. Brexit 2. Contract and commercial law 3. Employment law 4. Corporate law 5. Capital markets law 6. M&A, Private Equity and Venture Capital Transactions 7. Legal disputes 8. Financial markets regulation 9. Insurance law 10. Antitrust law 11. Taxes and customs 12. Movement of goods/Regulation (including external trade) 13. Intellectual property 14. Data protection 15. Environmental law 16. Energy law

1. Brexit

Brexit - the impacts

The British citizens’ vote in favour of the ‘Brexit’ will have far-reaching political and economic consequences for the EU. The impact it will have on companies within the EU is still not fully predictable and will fundamentally depend on the content and the outcome of the negotiations on the UK’s withdrawal. It is clear however, that the decision to ‘Brexit’ will create factual and legal uncertainties for a long time.

In the meantime, the British Prime Minister, Theresa May, has announced the UK’s exit from the EU. This marks the formal beginning for the negotiations on the terms of the UK’s withdrawal, which according to Article 50 TFEU will last two years. This negotiation period can only be extended upon the European Council’s unanimous decision thereto. It is currently not at all clear whether it will be possible to maintain the existing economic and regulatory framework to any extent at all.

In the regularly updated analysis below, we would like to demonstrate, in which areas of law changes could arise after the final withdrawal of the UK from the EU and which are the next steps to be expected from both sides.

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Download the original letter here

Download: Letter to European Council

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Whitepaper: Providing financial services in Germany

Download: Providing financial services in Germany

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Our London Office

Dr Thomas Kuhnle

Lawyer, Partner
7 Pilgrim Street
EC4V 6LB London

Phone +44 20 7002 5335
thomas.kuhnle(at)luther-lawfirm.com

   

York-Alexander von Massenbach

Lawyer
7 Pilgrim Street
EC4V 6LB London

Phone +44 207 002 53 48
york-alexander.von.massenbach(at)luther-lawfirm.com

>>More Information<<

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Our Brussels Office

Dr. Helmut Janssen

Lawyer
Partner
Avenue Louise 326
1050 Brussels

Phone +32 2 62 77763
helmut.janssen(at)luther-lawfirm.com

>>More Information<<

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Our Luxembourg Office

Laurent Massinon

Avocat à la Cour, Partner
Luther S.A., inscrite au Barreau de Luxembourg
Aerogolf Center, 1B, Heienhaff
L-1736 Senningerberg
Luxemburg

Phone +352 27484 658
laurent.massinon(at)luther-lawfirm.com

   

Hervé Leclercq

Hervé Leclercq

Avocat à la Cour, Partner
Luther S.A., inscrite au Barreau de Luxembourg
Aerogolf Center, 1B, Heienhaff
L-1736 Senningerberg
Luxemburg

Phone +352 27484 663
herve.leclercq(at)luther-lawfirm.com

>>More Information<<

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2. Contract and commercial law

Contract and commercial law

Distribution law
If the UK does not become part of the EEA, in the future, British business partners of commercial agents and distributors could easily exclude post-contractual compensation claims, minimum notice periods, the right to inspect a principal’s books and other German distribution law provisions by way of contract.

Product safety/product compliance
It is currently completely open, whether licences, granted in the UK, to place products on the market (in the automotive, medical product, machine industries, for instance) and for the distribution of goods within the EU will still be recognised as valid or whether this will require new, time-consuming procedures. Likewise, this question concerns goods that are to be exported to the UK and have been granted licences in another Member State of the EU. Within this context, it is questionable, for instance, whether the UK will accept German CE marking in the future.

Supply relationships
If customs duties between Germany and the UK are reintroduced in the future, this could significantly impact the calculations that supply relationships are based on. Apart from Incoterms clauses, an explicit provision regarding customs duties has seldom been agreed on in business relations between Germany and the UK. In some cases, a right of modification or a special right of termination could be conceivable. However, such rights are usually restricted to serious cases.

Volker Steimle
Partner
Luther Rechtsanwaltsgesellschaft mbH
Cologne
Phone +49 221 9937 24820
volker.steimle(at)luther-lawfirm.com

 

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3. Employment law

Employment law

One of the central topics that was also a trigger for the Brexit was the free movement of labour. This topic bears significant risks for German companies active in the UK. During the debate on the Brexit Bill a, the ‘Exiting the EU Committee’ of the House of Commons was formed, which made efforts to create a right to remain which guarantees the rights of EU citizens in the UK despite the Brexit. Their aim is to create a more simple procedure to replace the current more complex procedure to obtain a residence permit.

In the future, the UK will not be under an EU-law duty, to upkeep the TUPE regulations in its national law. However, we predict that, even after the Brexit, there will be regulations in the UK providing that, where a company changes ownership, all its employees shall be part of the transfer and therefore become employees of the buyer.

Likewise, a consequence of the Brexit will be that British members of an European works council or an SE works council will no longer have a right to participate in these panels. The other members will no longer have a right to information and consultations planned by the executive board of a British parent company.

We have already mentioned the forthcoming difficult negotiations regarding a right to free movement. The results of the negotiations and the implementation of any future agreements will be crucial in order to determine the extent to which the right of free movement of services and the EU Regulation No. 883/2004 on the coordination of social security systems will continue to apply. This will also determine the extent to which free movement of persons between the UK and other EU Member States can be provided for in international companies.

Prof Dr Robert von Steinau-Steinrück
Partner
Luther Rechtsanwaltsgesellschaft mbH
Berlin
Phone +49 30 52133 21142
robert.steinrueck(at)luther-lawfirm.com

 

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4. Corporate law

Corporate law

A key problem in the area of corporate law is the termination of the freedom of establishment. In the view of the EU Commission, a bilateral agreement with the UK should guarantee the freedom of establishment.

In the lack of a subsequent agreement to the point, transnational mergers, transformations and demergers involving British corporations will no longer be possible.

Due to the withdrawal of the UK from the EU, Societas Europaea (SE) with their headquarters in the UK will lose their legal basis. If future agreements between the UK and the EU do not provide a solution on this matter, these corporations will have to change their legal form.

The, until now, popular foundation of a UK Ltd. with its administrative headquarters in another EU Member State will only be possible in the future, if future agreements include the continued applicability of the incorporation theory (Gründungstheorie) to the UK.

Dr Klaus Schaffner
Partner
Luther Rechtsanwaltsgesellschaft mbH
Leipzig
Phone +49 341 5299 0
klaus.schaffner(at)luther-lawfirm.com

 

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5. Capital markets law

Capital markets law

Until now, prospectus law is mostly standardised throughout the EU due to a regulation and a directive. In the case of an emission, there was a possibility of using a prospectus in the UK by way of notification (European single passport). This will no longer be possible after the UK’s withdrawal, so that (initial) public offerings by an issuer in the UK could require independent approval of the prospectus by the British Financial Services Authority.

The same applies to the funds industry in the areas of distribution of fund shares, safekeeping of fund assets by national depositaries, and the management by capital management companies.

Dr Jörgen Tielmann, LL.M.
Partner
Luther Rechtsanwaltsgesellschaft mbH
Hamburg
Phone +49 40 18067 16829
joergen.tielmann(at)luther-lawfirm.com


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6. M&A, Private Equity and Venture Capital Transactions

M&A, Private Equity and Venture Capital Transactions

It is very difficult to predict the mid- term impact of Brexit to the transaction activity inside the EU. However, one can assume that the uncertainty that is coming with Brexit will lead to a decline of investments in the United Kingdom, at least on the short term. Thus, as the high liquidity of investors is unchanged, other Member States could benefit from this development. Due to the sustained strength of its economy and the attractiveness of the medium sized businesses, Germany could be one of those beneficiaries.

non-listed companies and commercial contracts

In transnational contracts involving a British party, the UK’s withdrawal will terminate the applicability of Regulation No. 593/2008 (EC) (Rome I) on determining which national law applies to contractual obligations in the EU. However, as this regulation contains long-established international principles and in practice, the parties tend to choose the law applicable to their contract, no changes are to be expected in this area of law.

As far as current contractual relationships and pending M&A transactions involving a British company are concerned, the question arises, whether the result of the referendum in itself significantly changes the contractual basis (MAC). This must be individually assessed for the relevant specific relations respectively.

Listed companies

The British Takeover Code (City Code on Takeovers and Mergers) significantly impacted the EU Takeovers Directive. Therefore, changes of law in this area are not to be expected as a consequence of the Brexit.

Dr. Thomas Kuhnle
Partner
Luther Rechtsanwaltsgesellschaft mbH
Stuttgart
Phone +49 711 9338 19193
thomas.kuhnle(at)luther-lawfirm.com


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Brexit: Impact on M&A

In a nutshell:

The UK’s vote to withdraw from the EU has led to substantial uncertainty in all market participants about the market environment and the relationship of the UK and the EU after the Brexit, that is assumed to last during the negotiation period and until the final withdrawal (and presumably even after that). The referendum impacts all areas of company acquisitions; therefore buyers and sellers must observe the corresponding changes. The continental European M&A market could experience a certain boost, amongst other reasons, because non-EU companies will seek to secure their direct access to the single market.

Concerning the referendum’s legal and economic impacts on company acquisitions and the transaction market.

The referendum on the UK’s withdrawal from the EU on the 23rd June 2016 has led to substantial uncertainties for all market participants. Up until the last minute, the British citizens’ decision in favour of an “exit” seemed ruled out for most people.

On the 29th March 2017 Theresa May triggered the procedure of withdrawal in accordance with Article 50 TEU and thereby initiated the negotiations on the terms of the withdrawal. As according to Article 50 TEU the negotiations must be completed within two years, it is expected that the UK will have left the EU by March 2019 at the latest.

Many months after the referendum and despite the UK government’s publication of a White Paper, the specifics of the way in which the UK’s withdrawal from the EU is supposed to take place remains mostly unclear. This applies especially with regard to the development of the political and economic relations post Brexit. The UK government dismisses the possibility of remaining in the European Single Market and the Customs Union, but at the same time it has announced that a strategic partnership with the remaining 27 EU Member States is to be created.

Furthermore, from the UK government’s point of view, free and smooth trade between the UK and the EU is to be guaranteed by a free trade agreement. However, the arrangement’s specifics cannot be identified in the White Paper.

The imponderables arising therefrom are creating substantial uncertainties and are influencing company sellers and buyers in their decisions.

They must try to take the framework conditions into consideration the best they can. This applies to the calculation of buying prices as well as strategic planning for the target’s future business development. The Brexit vote therefore has broad consequences on M&A transactions.

Impacts of the Brexit decision on M&A transactions

  • Due diligence
    Concerning due diligence, buyers must pay special attention to the way in which the Brexit will impact the target’s business on a short and on a long term. E.g.: Can the contracting partner terminate long- term contracts of the target company extraordinarily due to the Brexit? Is the patent and trademark protection guaranteed nationally, even if, e.g. existing European trademarks lose their direct applicability in the UK due to the UK’s withdrawal from the EU? In which way can data protection be guaranteed within the UK in the future, if the UK and the EU were not to reach an agreement in this respect and therefore the UK were to become a so- called “unsecure third country” comparable to the USA? Does the target receive subventions from the EU that would no longer be receivable in the case of the UK’s withdrawal and potentially would even have to be paid back? Are the resident statuses of the target company’s employees, who e.g. work in the UK and in the EU, secured?
  • Merger control
    If no new agreement can be reached with the EU, M&A transactions involving the UK will have to be checked and approved both by the European Commission and the UK Competition and Market Authority, if the applicable threshold is exceeded, because the EU-wide application procedure for such mergers will then no longer cover the completion of the merger in the UK. This end to the one-stop-shop principle would result in significant extra costs for those involved and bears the danger of diverging decisions.
  • Foreign investments
    Until now, the UK government only had the power to deny the acquisition of national companies by foreign companies in the case of a threat to the public interest, thus, especially in the case of investments in sensitive sectors as for instance the energy sector or the defence sector and in the case of significance to national security (national security test). Prime Minister May’s press releases show, that, during the next consultations on the terms of the new UK framework for acquisitions, she wants to try to establish a new system that offers more possibilities to interfere with company transactions involving foreign participation post Brexit. This could even go as far as the introduction of completely new, restrictive regulations for foreign investments, e.g. following the US or Canadian example. However, it seems fair to question whether the UK will be able to afford such restrictive politics concerning foreign investors in the future.
  • Material adverse change (MAC) clauses
    In the current situation, insofar as M&A transactions with a British contracting party that have not yet been completed are concerned, the question regarding the applicability of MAC clauses arises. However, this question can only be answered on the basis of the wording of the clause of the contract concerned and the specific circumstances of the case. To qualify the result of the referendum and the uncertainties arising therefrom as a substantial (disadvantageous) change of the basis of the contract in the sense of an “MAC”, would however be an extremely drastic approach and presumably would not be effectively enforceable. Therefore it is recommendable to introduce clarifying amending or terminating clauses for future contracts.
  • Specific limitations of sellers’ liabilities
    In practice, many cases have already occurred, in which sellers have sought to limit their liability in a company purchase contract insofar as they should not be liable for breaches of warranty and should not be liable to pay compensation where the circumstances causing the breach of warranty arise due to a change of law due to the Brexit. Even if such agreements on the exclusion of liability due to a change of the legal framework are not unusual, in the case of a clause worded in a general manner, it would seem difficult for the seller to prove the causal link between the Brexit and the change of law in an individual case. Special attention should be paid to this problem when drafting contracts.
  • Choice of law clauses
    If the negotiations should cause the Rome I Regulation on the Law Applicable to Contractual Obligations to become inapplicable in the UK due to the UK’s withdrawal from the EU, this would have only marginal consequences on company purchase contracts involving British participation. The reason is that in such sales contracts those involved in the transaction will usually reach agreements on the law applicable to their contract. Such choice of law clauses are largely market standard and offer the contracting parties the necessary legal certainty. Due to this contracting practice no call for action is required as a result of the Brexit in this respect. However in the future, it could be that – due to a stronger negotiating position of one of the transaction parties – there will be more choices of continental European law than of UK law. The reason for this is that it could become unclear what is to be understood when speaking of “English law” in the future.

The development of the M&A market in the UK and in Europe post-Brexit

Due to the volatility of the markets, a prediction on the development of the M&A business is only possible with reservations.

  • Consequences for the UK M&A market
    The British market suffered a significant slump directly after the referendum, but it recovered relatively quickly. Nevertheless many experts expect another dip in the conjuncture in the course of 2017. This assumption is reinforced by data released in February 2017 by Thomson Reuters, which at this point in time, has already recorded a decrease by 63% in the inbound M&A market.

    Especially due to the period of uncertainty to be expected and the threat of loss of - or a significant restriction to - the access to the European Single Market, a noticeable decrease in M&A business seems probable in the course of 2017.

    Certain compensation might be sought in the fact that due to the sustained decline in value of the British pound, some UK targets will become especially cheap to buy.

    Especially due to the period of uncertainty to be expected and the threat of loss of - or a significant restriction to - the access to the European Single Market, severe impacts on the transactions market are expected.

    Amongst others, this is the result of a study of Baker McKenzie and the Oxford Economist which predicts a drastic decrease of 60% on the M&A market in the UK in 2017 and therefore has reduced the prognosis of a transactions volume of 340 billion USD to 125 billion USD.

    In contrast, rising activity is to be expected in the area of “distressed M&A” and in the offering of alternative financing possibilities.
  • Consequences for the European/German M&A market
    With this in mind, which developments are to be expected concerning the continental European, and especially the German M&A market?

    At least a slight increase in investments in the remaining 27 EU Member States is to be expected.

    This assumption is emphasised by the above-mentioned study of Baker McKenzie and the Oxford Economist, which even predicts an increase of the global transactions volume of 28%. The impacts are expected to primarily affect the European market, the Middle East and Africa.

    This affects private equity investors and strategists alike, because the access to the European Single Market and the Customs Union is guaranteed. The states that are most likely to profit from these investments are those that are considered economically and politically especially stable. This applies to Germany and should most probably increase the attractiveness and therefore also the prices of companies that form part of the German “Mittelstand”.

Dr. Johannes C. Becker
Luther Rechtsanwaltsgesellschaft mbH
Köln
Telefon +49 221 9937 25799
johannes.becker(at)luther-lawfirm.com

York-Alexander von Massenbach
Luther Rechtsanwaltsgesellschaft mbH
London
Telefon +44 207 002 53 48
york-alexander.von.massenbach(at)
luther-lawfirm.com

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7. Legal disputes

7.1 Regular (domestic) courts

Concerning the law of civil procedure, the Brexit could impact the jurisdiction of the courts of Member States of the EU and the recognition and enforcement of judgments in relation to the UK. The aforementioned points are regulated by the “Brussels Ia Regulation” (Regulation (EU) No 1215/2012), which applies across the entire territory of the EU.

Crucially, it regulates three areas of the law of civil procedure:

  • The international jurisdiction of the courts of the Member States of the EU. Amongst other things, it declares that where actions come within the exclusive jurisdiction of several courts, any court other than the court first seised shall stay its proceedings and potentially even decline jurisdiction in favour of that court. (Art. 29 f. Brussels Ia Regulation) This way, it is possible to establish the jurisdiction of German courts (instead of British courts where proceedings may be more expensive), if there is a general place of jurisdiction in Germany according to the regulation.
  • It also regulates that a judgment given in a Member State shall be recognised in the other Member States without requiring any special procedure. (Art.36 of the Brussels Ia Regulation
  • A judgment given in a Member State which is enforceable in that State is enforceable in another Member State, without requiring a declaration of enforceability (Art.39 of the Brussels Ia Regulation)

Concerning the aforementioned regulation, it is questionable whether its content will continue to apply in relation to the UK. The negotiated and concluded agreement on the withdrawal of the UK from the EU provided for by Article 50 s.2 TFEU will have to include a decision on the applicability or non-applicability of the Regulation. In the case of non-applicability, it would be in both the EU’s and the UK’s interests, to reach a corresponding agreement, as the alternative would be the application of national provisions (the private international law of the respective states involved).

In the light of the above, it is recommendable to have judgments, given in other Member States (judgments given by German courts for instance) that you wish to be enforced in the UK (for instance, because the debtor’s only assets are located there), enforced in the near future. Where a company settled in the UK threatens to bring an action, it is also highly recommendable to assert a negative declaratory action in a German court, if a general place of jurisdiction in Germany can be established on the basis of the Regulation. This will trigger the barring-effect of Art.29 ff. of the Regulation, the consequence being that the outcome of the case will be more predictable and the costs of litigation and the lawyers’ fees will be reduced significantly.

Dr. Florian Schulz M.B.A. (Nimbas)
Partner
Luther Rechtsanwaltsgesellschaft mbH
Hamburg
Phone +49 40 18067 18023
florian.schulz(at)luther-lawfirm.com


Dr Stephan Bausch, D.U.
Partner
Luther Rechtsanwaltsgesellschaft mbH
Cologne
Phone +49 221 9937 25782
stephan.bausch(at)luther-lawfirm.com


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7.2 Courts of arbitration

The referendum has no immediate impact on current arbitration proceedings. The legal framework for international arbitration proceedings is mainly shaped by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which applies to the UK, even in the absence of its EU membership. As a direct contracting state to the ICSID Convention of 1965, which created the International Centre for Settlement of Investment Disputes (ICSID) and regulates the enforcement of ICSID-arbitration awards, the UK is also bound thereto, even in the absence of its EU-membership.

Since the ECJ-judgment in the case of Benetton, arbitration proceedings within the EU are subject to core regulations of EU law by way of ordre public. Antitrust law, for instance, is subject to these regulations. Due to the Brexit, this antitrust law will probably no longer be applicable within the UK, but it will still apply to the enforcement of arbitral awards within the EU.

An exit from the EU should probably cause so-called anti-suit injunctions, by which injunctions against court proceedings in other EU Member States are meant, to revive. Such injunctions have been held unlawful since the ECJ-judgment in the West Tankers case.

Dr. Richard Happ
Partner
Luther Rechtsanwaltsgesellschaft mbH
Hamburg
Phone +49 40 18067 12766
richard.happ(at)luther-lawfirm.com


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8. Financial markets regulation

Financial markets regulation

Due to the EU financial markets directives, certain credit institutes are able to acquire a ‘European single passport’ whereby, after notification, these institutes are able to use licence for the supply of services obtained in one Member State in other Member States (either by way of transnational supply of services or by way of establishment). If the EU and the UK do not agree on a special arrangement, after the UK’s withdrawal from the EU, it will be treated like a non-member state in the financial markets regulation. The consequence would be, that institutes settled in the UK could no longer operate in the European Economic Area on the basis of a European single passport. Apart from the Alternative Investment Fund Managers Directive (AIFMD Directive No. 2011/61/EU), the EU financial market directives do not provide for a possibility of companies outside the EU to acquire a EU-wide licence.

Furthermore, if the UK does not agree to a special arrangement, institutes based outside the UK will no longer be able to operate in the UK on the basis of the ‘European single passport’.

In the light of the aforementioned, it is important that the future agreements deal with the question whether and in which form there shall be a single licence principle involving the UK in the future. The UK could use the Brexit in order to introduce less stringent regulations for its own market, thereby attracting more business to the UK. In relation to the EU Member States, however, such a strategy has little prospect of success. In the area of financial market regulation, the EU has always strictly ensured that only those non-member states should obtain facilitated access to the financial market of the EU that have a level of supervision comparable to the EU. And even if the level of supervision of the non-member state can easily be classified as high, from a legal perspective, in supervisory terms, dealing with financial market transactions or projects with non-member states remains difficult. Until now, non-member states have sought to overcome these problems by way of subsidiaries licenced across the EU settled in London. This strategy would no longer function after the UK’s withdrawal from the EU. Therefore, it would seem advisable in such cases, to move the company to a Member State of the European Economic Area (e.g. to Frankfurt) or to establish a subsidiary in the European Economic Area.

Ingo Wegerich
Partner
Luther Rechtsanwaltsgesellschaft mbH
Frankfurt a.M.
Phone +49 69 27229 24875
ingo.wegerich(at)luther-lawfirm.com


Dr. Rolf Kobabe
Partner
Luther Rechtsanwaltsgesellschaft mbH
Hamburg
Phone +49 40 18067 24680
rolf.kobabe(at)luther-lawfirm.com

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9. Insurance law

Insurance law

Insurance companies (cf. §§ 57 ff. and §§ 61 ff. Insurance Supervision Law (‘Versicherungsaufsichtsgesetz’)) and insurance broker (cf. §§ 11a s. 4 and § 34d s. 5 Industrial Code (‘Gewerbeordnung’)) of the EU and the EEA are principally bound by the so-called ‘country of seat principle’ and the ‘country of origin principle’. This means that insurance companies and insurance brokeronly require a licence from their country of establishment or their country of origin, if they are operating or wish to operate elsewhere within the EU/EEA (so-called ‘European Passport’). Insofar, the only step to be taken, is for the supervisory authority of the country of origin to notify the authority in the country they wish to operate in.

The withdrawal of the UK from the EU will render these provisions inapplicable to the UK. If no equivalent agreements were to be reached, insurance companies and insurance broker based in the UK would have to apply for an additional  licence to operate in the EU/EEA and vice versa, insurance companies and insurance broker based in the EU/EEA would have to apply for a licence to operate in the UK.

In its White Paper, published on the 2nd February 2017, the UK government expressed its interest in the continuing cooperation with the EU and a draft of an agreement which acknowledges and considers the entwinement of both markets. However, it remains unknown in which way the UK government seeks to achieve this. Furthermore, it remains unclear, whether and to what extent it will be possible to reach an agreement with the EU.

Hence, it remains unclear, whether there will be an agreement between the UK and the EU that will replace the ‘European Passport’ (exactly). Insurance companies and insurance broker that currently conduct business from the UK to the EU/EEA and vice versa, from the EU/EEA to the UK on the basis of the ‘European Passport’ should therefore start to look for alternative solutions in order to be prepared for the case that no agreement is reached.

Dr Alexander Mönnig, LL.M. (Manchester), E.M.L.E.
Counsel
Luther Rechtsanwaltsgesellschaft mbH
Hamburg
Phone +49 40 18067 15453
alexander.moennig(at)luther-lawfirm.com


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10. Antitrust law

Antitrust law

As a consequence of the Brexit, the EU-wide application procedure for mergers with an EU-wide dimension will no longer apply to the enforcement of the merger in the UK. It is imaginable, but rather unlikely, that, the negotiations on the withdrawal of the UK from the EU could result in an agreement to the continued competence of the EU Commission, instead of requiring two separate application procedures, similar to the agreement between the EU and Norway.

As to the right of state aid, the UK will no longer be bound by the provisions in this area of EU law. On the one hand, this will enable the UK to offer more generous subsidies, which would create competitive advantages over European companies, but the Commission of the EU could confront this problem by imposing punitive tariffs on the UK.

Future agreements could also result in close cooperation between the British antitrust authority and the European Commission - similar to the agreement reached between the EU and Switzerland – in order to persecute and punish relevant acts in the area of antitrust law. It must also be taken into account that British antitrust law could contain provisions that differ in content from EU law after the Brexit, which would result in higher expenditure for advisory services and compliance.

Dr Thomas Kapp, LL.M. (UCLA)
Partner
Luther Rechtsanwaltsgesellschaft mbH
Stuttgart
Phone +49 711 9338 12893
thomas.kapp(at)luther-lawfirm.com


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11. Taxes and customs

Taxes and customs

European law has highly influenced and changed national corporate tax law during the last two years. Many regulations explicitly apply to the UK’s relation to other EU Member States only. Under the Foreign Tax Act (‘Außensteuergesetz’), the controlled foreign corporation rules do not apply to companies subject to low taxation within the EU or the EEA. The distribution of taxation of hidden reserves in economic assets that are brought to a foreign permanent establishment is only possible, if the permanent establishment concerned is situated in a Member State of the EU or the EEA.

The benefits on taxes on real estate transfers in cross-border group-internal restructuring measures will only be granted, if the restructuring measures follow the law of a Member State of the EU or the EEA. The aspects listed below are of special importance.

Due to the UK’s withdrawal from the EU, benefits arising from the Parent Company-Subsidiary Directive (Directive 2011/96/EU) in respect of withholding taxes for disbursements by corporations will no longer be available, as far as they are paid to British companies. According to the directive, dividends of companies owned by shareholders by at least 10%, are not subject to withholding taxes. Dividends that are paid out by British companies are not subject to withholding taxes by British national law, so in this respect the inapplicability of the Parent Company-Subsidiary Directive will not have any negative consequences. As to dividends paid out by German companies to their British shareowners, these will be subject to the tax rates of the Double Taxation Convention (5% for holdings of at least 10%) without the directive.

Due to the Interests and royalties Directive (Directive 2003/49/EC), no withholding taxes are levied on interests and royalties payments to associated companies. Germany does not usually levy withholding taxes on interest by way of national law. However, according to German national law, withholding tax on royalties is 15%. As according to the Double Taxation Convention, the tax law applicable is that of the recipient’s state, there are no disadvantages in this respect.

With few exceptions, cross-border conversions involving British corporations will no longer be possible on a tax-neutral basis. Insofar as vesting periods have not expired by the time of the effective date of the UK’s withdrawal from the EU, the consequences will have to be examined.

When the UK is no longer part of the EU, as to VAT, many changes affecting the applicable regulations, proof in form of ledgers and receipts, details on invoices and partly also the place of supply will have to be observed. In some cases, these changes could cause disadvantages in liquidity. Most notably, regulations governing intra-Community acquisitions and supplies will be replaced by the rules of import and export. The application for the refund of British input tax will no longer be made at the German federal central tax office (‘Bundeszentralamt für Steuern’), but instead at the British tax authorities.

After Brexit EU law concerning customs duties and other trade barriers to the UK will cease to be in force. If no agreement is reached on this point, the EU could impose import tariffs on their external borders on British goods.. The end of the Customs Union would cause formalities that would be a significant burden on the movement of goods.

As the UK did not conclude a convention on social security with the EU Member States (except for Ireland), it must be observed, what kind of regulations will be met for cases such as the posting of employees to the EU.

Ulrich Siegemund
Partner
Luther Rechtsanwaltsgesellschaft mbH
Frankfurt a.M.
Phone +49 69 27229 16364
ulrich.siegemund(at)luther-lawfirm.com


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12. Movement of goods/Regulation (including external trade)

Movement of goods/Regulation (including external trade)

Based on considerations of export control law, the withdrawal of the UK from the EU will lead to a situation, which already exists in the relationship between the EU and the USA: The mostly harmonised export control and embargo laws will no longer apply to the UK; instead, many new, independent export control provisions will have to be introduced, which could considerably differ from the generally binding EU regulations. Especially in the area of state embargoes, it would not be surprising, if the UK were orientated by the USA, rather than by the EU.

This could impact German companies and companies from other EU Member States in the following way:

Where the movement of goods did not require a licence until now (especially for the purposes of the Dual Use Regulation No. 428/2009) licences will have to be obtained in the future, though possibly, and this would be the best-case scenario, a general licence might be obtainable. Nevertheless, exporters should examine in full detail, if and under which conditions the supply of goods and technology to the UK will be permitted.

Furthermore, – similar to the situation of the USA – EU companies, that use British products and technologies in the manufacturing-process of their own goods which are prearranged for resale, or EU companies that have a branch or a subsidiary or a joint venture in the UK, will have to keep an eye on the British export control law, if they wish to avoid criminal liability in the UK due to re-export of British goods and technology. It must under no circumstances be ruled out, that supplies - for instance to Iran or Russia - that are permitted under the EU embargoes, could be forbidden under the British embargoes.

Ole-Jochen Melchior
Partner
Luther Rechtsanwaltsgesellschaft mbH
Essen
Phone +49 201 9220 24028
ole.melchior(at)luther-lawfirm.com


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13. Intellectual property

Intellectual property

Due to the Brexit, EU trade marks would lose their immediate validity within the UK, if no agreement were to be reached on their continued validity. The future of EU trade marks already obtained is uncertain. They could be converted into national trade marks by law or simply be rendered ineffective. In the latter case, additional applications for trade marks according to British law would have to be made. Whether the priority obtained by way of the EU trade mark could still be claimed, is questionable. The same questions also arise in the context of Community Designs.

The impact on licence agreements is problematic. If licence agreements provide for the validity of the licence within the EU or the EEA, the withdrawal of the UK from the EU could cause severe changes. In the UK, such licences would lose their validity. Then, it would be impossible to make intended use of the licences and this would evoke a right to terminate the contract. Furthermore, due to the reduced areal validity of the licences, agreed licence fees would have to be renegotiated.

The Brexit calls the planned standardisation of patent protection throughout the EU in question. The Unified Patent Court was supposed to start work in April 2017 and at the same time, the new European patent (unitary patent) was supposed to come into force with unified validity. It is supposed to guarantee standardised patent protection within the European Single Market. Due to the Brexit, the planned standardisation of patent protection will, at least, be seriously delayed. However, the UK’s withdrawal from the EU will have no impact on European patents and patent registrations without unitary effect, as the UK is a signatory state to the European Patent Convention (EPC). European patents will therefore retain their validity in the UK, despite its withdrawal from the EU, and will have to remain enforceable before the British courts.

Dr Wulff-Axel Schmidt
Partner
Luther Rechtsanwaltsgesellschaft mbH
Frankfurt a.M.
Phone +49 69 27229 27078
wulff-axel.schmidt(at)luther-lawfirm.com


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14. Data protection

Data protection

Due to its withdrawal from the EU, the UK will no longer be subject to the data protection laws of the EU and therefore will be classified – as the USA or India are – as a so-called unsecure ‘third country’. EU companies, that transfer data to these countries, must prove, that the data is adequately protected in accordance with the European provisions there. However, the circumstances under which adequate protection is provably given, is being heavily discussed since the decision of the ECJ reached in October 2015 on data transfer to the USA on the basis of the ‘Safe Harbour’ doctrine,. The introduction of ‘Privacy Shield’ as ‘Safe Harbour’s replacement has only eased the tension slightly.

Companies based in the EU that export data to the UK will certainly have to adapt their current and future contracts with British companies that are subject to data protection law. If data transfers are performed despite the lack of a guaranteed adequate data protection level in the country of destination, the involved companies must expect image loss and severe fines from the data protection supervisory authorities.

The UK government is planning on becoming a safe third country and to implement a level of data protection that corresponds to the EU standard. However, the specifics of this implementation and how long the procedure of acknowledging the level of data protection as ‘adequate’ in the UK and in the EU will take, remain unclear. Furthermore, it remains unclear, whether the UK will implement the General Data Protection Regulation that will become immediately effective in the Member States of the EU on the 25th May 2018. If the Brexit is not completed by May 2018, there will presumably be no way around the implementation, as the Regulation would at this stage still become binding on the UK. Whether an interim solution is to be sought is also unclear. Which approach the UK government chooses and whether the UK’s level of data protection, which has already been classified as rather low in comparison to that of other EU Member States, will fall even lower and whether companies with critical data processing (e.g. social media providers, list brokers, or marketing agencies) will make use of this situation by moving their activities to the UK, must be awaited.

Dr Wulff-Axel Schmidt
Partner
Luther Rechtsanwaltsgesellschaft mbH
Frankfurt a.M.
Phone +49 69 27229 27078
wulff-axel.schmidt(at)luther-lawfirm.com


Silvia C. Bauer
Partner
Luther Rechtsanwaltsgesellschaft mbH
Cologne
Phone +49 221 9937 25789
silvia.c.bauer(at)luther-lawfirm.com


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15. Environmental law

Environmental law

The UK’s withdrawal from the EU could result in higher administrative demands in the environmental sector for the UK, because many schemes of environmental provisions and environmental planning will have to be synchronized and the regional parliaments in Scotland, Wales and Northern Ireland might receive more competences to set their own standards. Differing legal regulations and plans between the EU and the UK on the one hand and between the UK’s different regions on the other hand in this area of law do not only put a strain on the legal certainty of current investments, but also increase the threshold for future investments. There is a threat of unequal conditions of competition that could result in strains on both sides of the Channel.

Whether the UK will use its withdrawal from the EU to release itself from Brussel’s exuberant environmental provisions and to create a more industrially friendly basis for regulation with less “red tape” must be awaited. The UK government’s White Paper does not mention a decrease in environmental standards. However, a decrease in environmental standards would be an interesting possibility to encourage investments in the industrial sector, despite all potential protest, for instance on behalf of NGOs.

As to climate protection, the UK government has already announced that it will continue to pursue ambitious aims in the reduction of emissions of greenhouse gases. Many observers consider a withdrawal from the EU Emissions Trading System, the so-called EU ETS, and the concentration on an independent market mechanism that can be connected with other trading systems, probable. The EU ETS is the largest and most important CO2-market worldwide so far. By withdrawing from the EU, British companies will lose access to this unique common market and will no longer be able to acquire emission certificates. Furthermore, it cannot be ruled out, that emission certificates, previously given to British plants and emissions, will no longer be able to be traded within the EU ETS. In any case, the Brexit will most certainly result in a change of the EU ETS Directive, which may cause substantial uncertainties in the trading system and price increases in the certificate market.

Last but not least, the UK will be excluded from the tremendous subsidisation by the EU which the latter grants to companies that signify environmentally friendly and energy-efficient products and services. This should result in advantages for EU companies.

Dr. Stefan Altenschmidt, LL.M. (Nottingham)
Partner
Luther Rechtsanwaltsgesellschaft mbH
Dusseldorf
Phone +49 211 5660 18737
stefan.altenschmidt(at)luther-lawfirm.com


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16. Energy law

Energy law

The impact of the Brexit on the energy sector can currently not be clearly assessed. It depends on how the relationship between the EU and the UK develops. As it is well known, many scenarios are conceivable.

The German energy providers have predicted a limited impact in first statements. In many respects, energy supply is a national or local matter, so that transnational consequences are limited. Even if the UK loses access to the European Single Market and customs are introduced, a severe price-increasing effect would probably be manageable on both sides, because the exchange of electricity and gas is limited. On the futures markets for electricity supplies in Germany for the front year 2017, the result of the referendum even had dampening effect on prices, in accordance to the dropping prices of raw materials like oil and coal. The effect on the UK could however differ, if the UK becomes dependent on gas supplies from the EU, due to declining gas exploration in the North Sea.

The Brexit could have a severe impact on investments in the UK. Energy supply is capital-intensive. The investment climate for infrastructure and other projects is likely to deteriorate noticeably, because the markups in financing are significant and the EU credit and support programmes will no longer be accessible. For current projects, the development of the exchange rate could prove to be a burden.

The Brexit could influence the generation mix in the UK. A general abandonment of renewable energies projects is not to be expected, because the climate protection aims of the UK are similarly ambitious as those of the EU. However, the UK would no longer be bound by the EU-laws on state aid. So, concerns about the accessibility of European state aid would no longer stand in the way of expanding the use of nuclear energy.

In the area of energy regulation, the political views are in broad agreement on both sides of the Channel; Liberalisation and competitive orientation are also met with vast approval in the UK. However, the UK with withdraw from regulatory important institutions in the EU, such as ACER, ENTSO-E and ENTSO-G and will therefore no longer be able to influence the further development of the regulatory law. The regulation-regimes will therefore probably drift apart eventually and this will impede the reciprocal market access.

If, after its withdrawal from the EU, the UK is treated like a third country in the area of financial market regulation, this will have an impact on the supply of services in energy trade. Institutes based in the UK will no longer be able to work in the EEA on the basis of the European single passport.

Dr. Holger Stappert
Partner
Luther Rechtsanwaltsgesellschaft mbH
Dusseldorf
Phone +49 211 5660 24843
holger.stappert(at)luther-lawfirm.com


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