07.11.2019

Brexit - the impacts

In our "Brexit section" we inform you about the latest developments regarding the withdrawal of the United Kingdom from the European Union and offer you constantly updated information on the areas of law concerned.

Introduction

The decision by British citizens to vote for Brexit will have profound political, economic and legal implications for relations with the European Union. The British voted to leave the EU in a referendum on 23 June 2016. The withdrawal agreement between the British Government and the European Union was rejected three times by the British Parliament. However, in a legally non-binding vote, the majority of MPs voted not to leave the European Union by means of a "no deal" exit. Finally, in March 2019 Prime Minister Theresa May asked the EU to extend the deadline until 31 October 2019. On 24 July 2019 she resigned as Prime Minister after several defeats in Parliament. Her successor is the former Foreign Minister and former London Mayor Boris Johnson.

Prime Minister Johnson set out to negotiate a better exit agreement for the United Kingdom than his predecessor. However, the so-called "backstop" was the central point of contention within the negotiations with the EU. This was to ensure that the UK remains within the European Economic Area until a solution is found for the border between Northern Ireland, which forms part of the UK, and the Republic of Ireland. The "backstop" would in fact have continued to bind the UK to the EU.

The EU refused to renegotiate the existing draft treaty. However, it was ready to work on an alternative solution for the border on the island of Ireland. Meanwhile, Prime Minister Johnson has tried to threaten with a "no deal” Brexit to bring the British Parliament on course and also to achieve successful negotiations in Brussels. His Conservative Party has by now even lost the majority in Parliament.

In early September, the opposition parties in British Parliament together with dissenters from the Conservative Party, who openly opposed Johnson´s intentions, passed a law prohibiting the Government from leaving the EU on 31 October without an agreement. In order to avoid a "no deal" Brexit on 31 October, the UK had to request a further extension of the withdrawal date in Brussels according to the law, which Johnson did reluctantly after further setbacks in the UK Parliament.

On 17 October 2019, EU Commission President Jean-Claude Juncker and Boris Johnson surprisingly announced an amended Brexit agreement that no longer includes the "backstop" rule in its original form. The new regulation only applies to Northern Ireland, which would in fact remain a member of the Customs Union. The EU celebrated the agreement of 17 October quite unanimously as a breakthrough, while the British opposition parties - in particular the Labour Party around Jeremy Corbyn - took a negative stance and proposed numerous amendments. The agreement has not yet been ratified by the House of Commons, but is still under debate in the British parliamentary subcommittees.

Boris Johnson was unable to keep his promise to lead the UK out of the EU by 31 October. To get the Brexit deal through parliament as quickly as possible and regain a majority in the House of Commons, Johnson announced new elections in the last week of October. On 29 October 2019, the British Parliament approved a new election on 12 December. A law to this effect was passed by the House of Commons with a large majority.

The new withdrawal date is now 31 January 2020 at the latest. It is not unlikely, however, that Boris Johnson will push for an earlier Brexit and get the withdrawal act through parliament as swiftly as possible if the Conservative Party wins the majority of votes in the 12 December elections. Even though the Labour Party's survey figures do not look promising at the moment, this could well change during the election campaign. The Labour Party promises a second referendum in the event of an election victory, in which a softer Brexit deal, still to be negotiated, would be set against the option of remaining in the EU. The Liberal Democrats, on the other hand, continue to vote clearly in favour of the UK remaining in the EU, while the Brexit party headed by Nigel Farage wants to achieve EU withdrawal without an agreement.

However, the outcome of the election is completely open and therefore all Brexit scenarios are still possible. Even if the UK withdraws from the European Union with a deal soon, you are best positioned for all possible scenarios if you prepare for a "no deal" Brexit. Until the final approval of the withdrawal agreement, a "no deal" scenario is still possible. Even after the ratification of the "deal", a hard Brexit cannot be completely ruled out. During the transitional period until the end of 2020, the UK and the EU must succeed in regulating future bilateral relations, including the conclusion of a trade agreement.

Even with future trade agreements, economic relations between the EU and the UK will change dramatically. Therefore, our experts at Luther have comprehensively dealt with the consequences of Brexit and have compiled their findings in our Brexit-Brochure. Detailed assessments of the individual legal areas can be found in the menu bar below. In addition, our teams of experts will be happy to advise you individually on the consequences of a "no deal" Brexit for your company.

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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.

Arbitration tribunals

Arbitration tribunals

For the time being, Brexit will not affect current arbitration proceedings. The legal framework for international arbitration is essentially provided by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “The New York Convention”, which applies to the UK even without EU membership. The UK, as a direct contracting member state to the 1965 ICSID Convention, which established the International Centre for the Settlement of Investment Disputes (ICSID) and also governs the enforcement of ICSID arbitration awards, is also bound by the ICSID Convention irrespective of whether it belongs to the EU or not.

Since the Benetton ruling of the European Court of Justice, arbitration proceedings within the EU have been subject to the essential provisions of EU law as ordre public. This includes, for example, antitrust law. Even though Brexit would cancel this out, this would still apply to the enforcement of arbitration awards within the EU.

With Brexit, so-called anti-suit injunctions, i.e. temporary injunctions against court proceedings in other EU states, would be revived. They had up to now been banned by the ECJ's West Tankers ruling.

Banking and capital markets

Banking and capital markets

Finacial 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.

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.

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.

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.

Data protection -Border controls for data protection after Brexit

Data protection -Border controls for data protection after Brexit

Data protection

Brexit concerns not only topics as famous as the freedom of movement for workers and the preservation of the "green border" between Ireland and Northern Ireland. Data protection is also directly affected.

Border controls for data protection after Brexit?
What will happen to data protection after the UK has left the EU? This is probably rarely one of the most urgent questions that EU citizens and EU companies are asking themselves. Other problems, such as living and working in the UK or the re-introduction of border controls, affect the daily lives of many people and companies much more directly, at a first glance.

Yet, considering that the UK was Germany’s fifth largest export market in 2017, data protection should also be recognised as an important issue. This is because huge amounts of personal data in relation to customers, suppliers or employees are transferred each day between continental Europe and the British islands.

The UK leaving the EU will probably initially put an end to the borderless transfer of personal data. The UK would become a so-called "insecure third country" to which no personal data would generally be allowed to be transferred, according to Articles 44 to 50 of the EU’s General Data Protection Regulation (GDPR). This was made clear in the European Commission’s "Notice to Stakeholders" dated 9 January 2018 for the area of data protection. At the same time, however, said document also contains approaches to solving this problem which, if adopted, might make transferring data permissible after all.

(No) Solution at government level?

(First of all, there is a large number of possible ways directly between the UK and the EU which could prevent the above-described ban on transfers.

The UK could, for example, become part of the EEA – where the GDPR applies – and would, hence, be deemed “secure”.
The problem with this solution: not only is Norway, as an EEA Member State, sceptical about this, for example, but the British themselves will also probably not want to join the EEA.

The prospects for the conclusion of separate data protection agreements or for the treaty of withdrawal that was submitted by the EU in February 2018 are similarly gloomy. The aforesaid draft treaty of withdrawal could, under certain circumstances, have defined the rules for the application of the GDPR during a transition period until the end of the year 2020 – and, thus, could have made data transfers permissible. The doubtful question of whether such a treaty would, for example, meet the requirements for an adequacy decision within the meaning of Article 45 GDPR can probably be left unanswered, however, as the British government is vehemently rejecting the treaty in its current form.

Instead, Theresa May announced in a keynote speech that the UK would prefer its own free trade agreement with the EU. This agreement could then (similar to, for example, the CETA agreement with Canada) contain provisions regarding data protection and/or regarding the permissibility of transferring data to the UK. Whether and when such an agreement will be concluded, if at all, and whether it will then actually contain provisions regarding data protection remains unclear, however.

The European Commission as a saviour?

In addition to international agreements, it would be possible for the European Commission to issue a "direct" adequacy decision under Article 45 GDPR. Such a decision establishes that the data protection level of a particular country corresponds to the level provided for in the GDPR. Transferring personal data would then be permitted.

It is doubtful, however, that the Commission will make such a decision. With the British "Investigatory Powers Bill" from the year 2016, the resulting comprehensive right to retain data and with the non-application of the EU-US Privacy Shield for data transfers between the UK and the USA, there are, inter alia, two considerable risks for personal data which do not exist in this form in the EU. An adequacy decision would, therefore, likely arouse significant concerns.

Hard Brexit? - Don’t panic!

We are thus back to a "hard" Brexit without any transition rules.
There is, however, a solution for data protection. The GDPR provides sufficient tools that make it possible for personal data to be transferred to the UK in the future even without a timely adequacy decision or agreement.

For this purpose, companies need to demonstrate that they provide "appropriate safeguards" according to Article 46 GDPR. Such safeguards include, for example:

  • EU standard contractual clauses;
  • binding corporate rules ("BCRs"); or
  • certifications.

All of these measures, however, have one thing in common: they require that companies that process data take action.

  • The existing data processing agreements need to be reviewed and, if necessary, be re-negotiated and supplemented with EU standard contractual clauses. Such clauses are already today the preferred way of dealing with cross-border data transfers outside the EU/the EEA.
  • Companies need to introduce BCRs or (where BCRs already exist) revise their BCRs.
  • For certifications, it must be proven based on lists of criteria stipulated by the supervisory authorities and based on the audit requirements of the certifying entity that the processing of personal data in the UK corresponds with the data protection level in the EU.

Last exit: exception

If the aforesaid instruments cannot be applied, Article 49 GDPR offers one last "sheet anchor". The exceptions listed therein make it possible for data to be transferred even without an adequacy decision or appropriate safeguards if, for example, the data subject has given his or her express consent. However, these exceptions are to be understood in a very narrow sense; their application must generally be assessed in detail and such assessment must be documented.

Because of the time and effort involved and the information requirements, in practice, these exceptions will probably only be the last resort. This is because the declaration of consent would also have to be revised with regard to data transfers to the UK and would then have to be re-obtained. Because of the international dimension to such data transfers, a data protection impact assessment might be necessary, depending on the particular case, before any data could be transferred.

Companies are called upon to take action

The GDPR provides sufficient ways, also in the case of Brexit, to carry out data transfers to the UK on a legally secure basis without making the data subjects feel uneasy. However, companies need to take action and implement these instruments as quickly as possible.

The implementation of the GDPR seems to be the perfect framework for already ensuring now that data can be legally and securely transferred also to the UK. Otherwise, the worst-case scenario might become real and the transfer of personal data to the UK would have to be entirely discontinued. In light of the advancing digitalisation and the increasing value of data, companies would be well-advised not to let this happen."

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.

Energy Law

Energy Law

Brexit concerns not only topics as famous as the freedom of movement for workers and the preservation of the "green border" between Ireland and Northern Ireland. Data protection is also directly affected.

Border controls for data protection after Brexit?

What will happen to data protection after the UK has left the EU? This is probably rarely one of the most urgent questions that EU citizens and EU companies are asking themselves. Other problems, such as living and working in the UK or the re-introduction of border controls, affect the daily lives of many people and companies much more directly, at a first glance.

Yet, considering that the UK was Germany’s fifth largest export market in 2017, data protection should also be recognised as an important issue. This is because huge amounts of personal data in relation to customers, suppliers or employees are transferred each day between continental Europe and the British islands.

The UK leaving the EU will probably initially put an end to the borderless transfer of personal data. The UK would become a so-called "insecure third country" to which no personal data would generally be allowed to be transferred, according to Articles 44 to 50 of the EU’s General Data Protection Regulation (GDPR). This was made clear in the European Commission’s "Notice to Stakeholders" dated 9 January 2018 for the area of data protection. At the same time, however, said document also contains approaches to solving this problem which, if adopted, might make transferring data permissible after all.

(No) Solution at government level?

First of all, there is a large number of possible ways directly between the UK and the EU which could prevent the above-described ban on transfers.

The UK could, for example, become part of the EEA – where the GDPR applies – and would, hence, be deemed “secure”. The problem with this solution: not only is Norway, as an EEA Member State, sceptical about this, for example, but the British themselves will also probably not want to join the EEA.

The prospects for the conclusion of separate data protection agreements or for the treaty of withdrawal that was submitted by the EU in February 2018 are similarly gloomy. The aforesaid draft treaty of withdrawal could, under certain circumstances, have defined the rules for the application of the GDPR during a transition period until the end of the year 2020 – and, thus, could have made data transfers permissible. The doubtful question of whether such a treaty would, for example, meet the requirements for an adequacy decision within the meaning of Article 45 GDPR can probably be left unanswered, however, as the British government is vehemently rejecting the treaty in its current form.

Instead, Theresa May announced in a keynote speech that the UK would prefer its own free trade agreement with the EU. This agreement could then (similar to, for example, the CETA agreement with Canada) contain provisions regarding data protection and/or regarding the permissibility of transferring data to the UK. Whether and when such an agreement will be concluded, if at all, and whether it will then actually contain provisions regarding data protection remains unclear, however.

The European Commission as a saviour?

In addition to international agreements, it would be possible for the European Commission to issue a "direct" adequacy decision under Article 45 GDPR. Such a decision establishes that the data protection level of a particular country corresponds to the level provided for in the GDPR. Transferring personal data would then be permitted.

It is doubtful, however, that the Commission will make such a decision. With the British "Investigatory Powers Bill" from the year 2016, the resulting comprehensive right to retain data and with the non-application of the EU-US Privacy Shield for data transfers between the UK and the USA, there are, inter alia, two considerable risks for personal data which do not exist in this form in the EU. An adequacy decision would, therefore, likely arouse significant concerns.

Hard Brexit? - Don’t panic!

We are thus back to a "hard" Brexit without any transition rules. There is, however, a solution for data protection. The GDPR provides sufficient tools that make it possible for personal data to be transferred to the UK in the future even without a timely adequacy decision or agreement.

For this purpose, companies need to demonstrate that they provide "appropriate safeguards" according to Article 46 GDPR. Such safeguards include, for example:

  • EU standard contractual clauses;
  • binding corporate rules ("BCRs");
  • or certifications.

All of these measures, however, have one thing in common: they require that companies that process data take action.

  • The existing data processing agreements need to be reviewed and, if necessary, be re-negotiated and supplemented with EU standard contractual clauses. Such clauses are already today the preferred way of dealing with cross-border data transfers outside the EU/the EEA.
  • Companies need to introduce BCRs or (where BCRs already exist) revise their BCRs.
  • For certifications, it must be proven based on lists of criteria stipulated by the supervisory authorities and based on the audit requirements of the certifying entity that the processing of personal data in the UK corresponds with the data protection level in the EU.

Last exit: exception

If the aforesaid instruments cannot be applied, Article 49 GDPR offers one last "sheet anchor". The exceptions listed therein make it possible for data to be transferred even without an adequacy decision or appropriate safeguards if, for example, the data subject has given his or her express consent. However, these exceptions are to be understood in a very narrow sense; their application must generally be assessed in detail and such assessment must be documented.

Because of the time and effort involved and the information requirements, in practice, these exceptions will probably only be the last resort. This is because the declaration of consent would also have to be revised with regard to data transfers to the UK and would then have to be re-obtained. Because of the international dimension to such data transfers, a data protection impact assessment might be necessary, depending on the particular case, before any data could be transferred.

Companies are called upon to take action

The GDPR provides sufficient ways, also in the case of Brexit, to carry out data transfers to the UK on a legally secure basis without making the data subjects feel uneasy. However, companies need to take action and implement these instruments as quickly as possible.

The implementation of the GDPR seems to be the perfect framework for already ensuring now that data can be legally and securely transferred also to the UK. Otherwise, the worst-case scenario might become real and the transfer of personal data to the UK would have to be entirely discontinued. In light of the advancing digitalisation and the increasing value of data, companies would be well-advised not to let this happen."

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.

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.

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.

Legal disputes

Legal disputes

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.

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.

Movements of goods/Regulation (including external trade)

Movements 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.

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.

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