Brexit Update: Countdown to the End of the Transition Period
09 Nov 2020
The UK left the EU on 31 January 2020 and entered into an 11-month transition period. This period was agreed with a view to enabling the UK and EU to discuss and settle on a new and fair partnership for the future and also to give time for businesses, citizens and national administrators to prepare for the changes that will take effect from 1 January 2021 when the UK will no longer be in the EU customs union and single market.
In the midst of COVID-19, it has been tempting to push Brexit to the back of our minds as people and businesses alike struggle to survive this difficult period. However, as 1 January 2021 is now looming it is essential for businesses to start preparing for the consequences that will flow from Brexit.
Here, we set out a list of the actions that companies, doing business in or with the UK, should be considering now in preparation.
Supply Chain / Customer Lists
- Businesses should analyse the extent to which they are dependent on UK-based suppliers and customers, as this will determine how well they can adjust to a post-Brexit market. In order to limit their exposure, businesses should try to spread their risk across both EU and UK markets. Over-reliance on one market could make a company vulnerable to currency volatility rates.
- Businesses should open up a dialogue with their suppliers and customers about how to minimise any disruption to logistical timetables.
- Delivery routes from the UK should be reviewed to see if there are any alternatives that might be less susceptible to disruption (for example, direct routes to continental Europe, even if longer, might be more predictable).
- Due to inevitable delays in supply lines, shelf-life and lead-in times for products should be closely monitored and factored into cost projections.
- Businesses should be aware that some products, like medical devices, could require additional compliance with EU law if imported from the UK (see below for more detail).
- Businesses should review their insurance policies to ensure that they are covered for the costs that result from delays in the supply chain.
UK Market Strategy
- Once businesses have drawn up a list of their main UK customers, they should open regular lines of communication.
- Businesses should revisit how to manage currency risk and exposure post-Brexit.
Import / Export Rules
- Each business will have its own industry specific concerns around new customs and regulatory requirements to be complied with (see below "Regulation, Licensing and Certification Requirements"). Businesses should keep close track of these as developments occur.
- Businesses trading with non-European countries require a unique Economic Operators Registration and Identification ("EORI") number. Therefore, regardless of whether a business is importing to or exporting from the UK, it will need to register for an EORI number.
- As the UK will now be considered a "third country", businesses that import to or export from the UK should apply to the Revenue Commissioners for binding tariff information, which provides legal certainty around tariff classification decisions.
- Businesses should consider the impact of rules of origin on customs duties – these may help to determine if the goods imported or exported qualify for lower duties.
In order to improve efficiency in the supply chain, businesses should contact the Revenue Commissioners to discuss the availability of simplified customs clearance and duty payment procedures.
- Deferred payment accounts set up for the purpose of paying customs duties could help to manage cash-flow.
- Brexit could mean that a company which did not need to register for VAT in the UK previously may now need to do so.
Regulation, Licensing and Certification Requirements
- Some products will have additional certification or regulatory requirements post-Brexit and businesses should ensure that if they are bringing products into the EU, they are certified for sale and use in the single market.
- On 1 January 2021, UK notified bodies (i.e. certification bodies, inspection bodies etc. authorised to assess the compatibility of products before they can be legally placed on the EU market) will no longer be recognised for certifying products to be sold in the EU single market. This means that if a product is currently certified by a UK notified body, for these purposes, it will be necessary to have it certified by an EU-27 notified body. A list of all EU notified bodies is available on the New Approach Notified and Designated Organisations1 database.
- Chemicals, machinery and equipment manufactured in, or imported from the UK, should also be checked to confirm that they are fully compliant with EU safety requirements.
Cash-flow and Currency
- Enterprise Ireland’s currency impact calculator is a useful tool for businesses to assess the likely impact of currency exchange rates on profitability.
The Irish Government’s guide, "Currency Risk Management for Irish SMEs", explains how SMEs can assess and manage their currency exposure.
- Enterprise supports (discussed in more detail below) should be availed of to help manage cash-flow.
Contracts with UK suppliers and customers should be reviewed. Consider:
- Who will bear the cost of clearing customs and payment of duties?
- Should the territorial scope of the contract be updated?
- What impact there is on compliance with legal obligations and the costs of such compliance?
- Revisiting the governing law and jurisdiction clauses where the UK is the law and jurisdiction of choice.
- Whether there are adequate provisions allowing for the transfer of personal data to the UK?
If no deal is reached between the EU and the UK, transfers of personal data from the EU to the UK from 1 January 2021 will be subject to the rules for data transfers to "third countries" (such as the USA). These rules are set out in the EU General Data Protection Regulation ("GDPR"). They require a European Commission "adequacy" decision in respect of the UK's data protection regime or one of a number of safeguards to be put in place to ensure an adequate level of protection for the data.
The EU is currently conducting an assessment of the UK’s data protection regime in order to determine if EU data can safely be transferred to the UK after the end of the transition period. It seems unlikely that this assessment will be complete before 1 January 2021.
In the absence of a positive adequacy assessment, the European Commission approved Standard Contractual Clauses ("SCCs") are likely to be the most relevant safeguard for Irish-based controllers transferring personal data to the UK. These are a template set of contractual terms to be entered into by the Irish-based controller and the UK-based recipient.
The European Commission is currently updating the SCCs to address concerns raised by the recent Schrems II decision of the Court of Justice of the EU (16 July 2020). Depending on the terms of such updated SCCs and / or in their absence, Irish-based controllers will also need to conduct a transfer impact assessment ("TIA"). A TIA will consider whether the SCCs alone provide enough protection for personal data transferred to the UK. The SCCs may then require, depending on the outcome of the TIA, the adoption of supplementary measures by the controller in order to ensure compliance with the level of protection guaranteed within the EU.
The UK Government has stated that it will recognise the remaining EEA Member States as having an adequate level of protection for personal data. This means that personal data can continue to flow freely from the UK to the EEA (including Ireland) unless and until the UK government changes its position. Therefore Irish businesses receiving personal data from the UK can continue to do so after Brexit and do not need to take any action.
Intellectual Property Rights
Under the European Union (Withdrawal) Act, on 1 January 2021, UK registered trademarks and design rights will be created for existing EU trademarks and registered Community designs. However, new EU intellectual property rights following that time will have a reduced territorial scope as they will no longer have effect in the UK. Businesses should consider the necessary steps required to ensure continued protection of intellectual property rights in the UK including in respect of pending EU registration applications.
Businesses should also review existing EU licences and co-existence agreements and consider updating their territorial scope to refer to the EU and the UK.
Implications under Irish Company Law
There will be some practical implications under Irish company law once the transition period ends in a no-deal scenario. For example, UK resident directors will no longer be resident within the European Economic Area (the "EEA") and companies incorporated in Ireland relying on such directors to satisfy EEA resident director requirements (Section 137 of the Companies Act 2014) will not be compliant. In addition, there will be financial statement filing issues for subsidiaries if their holding company is registered in the UK. Similarly, when registering an Irish branch of a UK registered company, the UK company will be considered a non-EEA country and will be subject to modified financial statements requirements. Please read our previous update2 on this matter.
As of 1 January 2021, certain EU Regulations facilitating the cross-border recognition and enforcement of judgments in the EU, which have applied in the UK during the transition period, will no longer apply. Important examples include Regulation (EU) No. 1215/2012 (recast) (the “recast Brussels Regulation”) and Regulation (EC) No. 1393/2007 (the “Service Regulation”).
The UK, in its European Union (Withdrawal) Act, signified an intention to continue to apply existing EU law rules in this regard, but that does not mean that the status quo will remain unchanged. For example, it appears that the UK will no longer be party to the reciprocal arrangements between EU Member States which permit the Service Regulation to function effectively. It is recommended that commercial contracts be reviewed and the choice of UK jurisdiction and law considered and re-assessed.
Sector Specific Checkpoints
- From 1 January 2021, trade with the UK will be primarily based on the World Trade Organisation ("WTO") rules, and more specifically on the General Agreement on Trade in Services. Additionally, trade will be based on trade arrangements made between the UK and the EU.
- The trade rules under the WTO are less substantial than those in the EU single market (no mutual standards, no mutual recognition and fewer enforcement mechanisms). Businesses in Ireland should prepare by examining whether their supply of financial services to the UK would currently comply with the WTO trade rules. In the event that no trade agreement is reached with the UK, this would at least provide Irish businesses with some comfort.
- From 1 January 2021, all medical devices must be certified by notified bodies based in the EU-27. This process may be time and labour intensive, and medical device suppliers should start analysing now which of their devices are currently certified by UK notified bodies.
- The Irish Government has set up a critical assessment for medical devices and continues to engage with medical device suppliers and manufacturers.
- EU air carriers and holders of aviation safety certificates will need to ensure that they uphold compliance with EU requirements, including airline requirements on principal place of business and EU majority ownership and control, as well as EU aviation safety requirements.
- The Commission for Aviation Regulation is in ongoing contact with affected air operators licensed in Ireland in relation to their restructuring plans.
Road Transport Operators:
- It will be necessary to comply with additional certification requirements post Brexit.
- Transport operators in the UK will no longer hold a Community licence which means that there could be complications with visa requirements leading to additional cost and timing implications for goods being transported across the UK / EU border.
- The restrictions around COVID-19 could also lead to additional requirements and complications for transport operators as countries try to avoid another wave of cases, and this should be factored into logistical timetables.
- Mutual recognition of employee professional qualifications obtained in the UK should be verified by the relevant professional body.
The Irish Government has adapted the support that it provides to small to medium sized entities which reflect the heightened challenges that many of these businesses will face in the months following the transition period. These supports range from (i) preparedness vouchers, (ii) liquidity support to fund working capital requirements, (iii) loans to fund costs associated with innovation, change or adaption required to mitigate the impact of Brexit and (iv) restructuring aid. They include the Brexit Loan Scheme, the Future Growth Loan Scheme Businesses, the Ready for Customs Grant and the Be Prepared Grant. Businesses can review the Government’s range of advisory and financial supports3.
While the coming months will certainly present challenges, Irish companies doing business in or with the UK should use this time to prepare for as smooth and efficient a transition as possible. In doing so it is highly recommended that they make use of the vast array of guidance materials available on the Irish Government4 and the EU Commission5 websites.
For further information, please contact one of the below contacts or your usual Maples Group contact.
T: +353 1 619 2028
T: +353 1 619 2058
Partner Cayman Islands
T: +1 345 814 5377
T: +353 1 619 2754
T: +353 1 619 2730
T: +353 1 619 2726
T: +353 1 619 2113