Charles Proctor Partner, Fladgate LLP

Charles Proctor Partner, Fladgate LLP

BREXIT POTENTIAL LEGAL RAMIFICATIONS FOR SUBSIDIARIES Charles Proctor Partner Fladgate LLP Email: cproctor@fladgate.com Tel: 020 3036 7324

CONTENTS Brexit Overview The Four Freedoms Movement of Goods Establishment/Services Free Movement of Capital Free Movement of Workers/People Government Procurement

CONTENTS (cont d) Banking and Finance Contractual Issues Possible Areas for Action

BREXIT OVERVIEW Current status Likely outcomes for UK based companies/subsidiaries Customs union/single market Many areas of uncertainty Basis for planning

THE FOUR FREEDOMS Four freedoms will be less free Goods Capital Services/Establishment Workers/People Brexit outcomes will inevitably dilute these freedoms. But how much? UK looking for bespoke FTA, but no substantive details yet

MOVEMENT OF GOODS Customs Union Treaty prohibits tariffs and non-tariff barriers (e.g. quantitative restrictions/quotas/regulation/approvals) for intra-eu trade Also provides for common external tariff for third country goods The UK will not sign up to a parallel customs union with EU27

MOVEMENT OF GOODS (cont d) Independent trade policy Two-way impact of Brexit Goods that you import from other EU Members States will become subject to UK tariffs Goods that you export to the EU will be subject to the EU s common external tariff Dealings with EU group members/affiliates may become subject to the new tariff arrangements on a two-way basis

MOVEMENT OF GOODS (cont d) EU cannot increase tariffs as against UK because of WTOs most favoured nation clause UK would have to extend comparable treatment to EU countries Customs declarations/administrative burdens and costs Supply chain inefficiencies Competitiveness

MOVEMENT OF GOODS (cont d) Future Customs Arrangements: A Future Partnership Paper (August 2017) Options of (i) streamlined customs procedures using technology-based solutions or (ii) a customs partnership, eliminating a UK-EU customs border Customs Bill Legislating for the UK s Future Customs, VAT and Excise Regimes (October 2017)

MOVEMENT OF GOODS (cont d) Customs Bill will create a framework for the creation of a customs system, classification of goods/rates etc. Power currently lies with EU Preparing for our future UK trade policy (October 2017) Proposed trade bill Unilateral system of preferences?

ESTABLISHMENT/SERVICES Freedom to provide services on a cross-border basis Extent of likely changes? Particular issues for regulated entities See banking issues, below

FREE MOVEMENT OF CAPITAL Facilitates cross-border investment/transactions Also facilitates access to finance from a range of EU centres Limited scope for changes in this area Article 63, EU Treaty prohibits all restrictions on the movement of capital between Member States and between Member States and third countries

FREE MOVEMENT OF CAPITAL (cont d) UK unlikely to adopt forms of exchange/capital controls. Would require consent of IMF in any event

FREE MOVEMENT OF WORKERS/PEOPLE Immigration as a key driver for Brexit Need to resolve position of existing staff from EU Future hiring from EU Member States may be subject to immigration approvals, with resultant delays Reduction in employee mobility within the group of companies Corresponding problems in posting UK staff to an EU head office

GOVERNMENT PROCUREMENT Current obligation under EU law to tender public contracts on an open and non-discriminatory basis Public Procurement Directive (2014/24/EU) / Concessions Directive (2014/23/EU) / Utilities Directive (2014/25/EU) Requirement of non-discrimination An EU government cannot make a positive decision to favour own nationals for contracts Change in attitude of UK government post-brexit?

GOVERNMENT PROCUREMENT (cont d) WTO s Government Procurement Agreement will apply UK currently a member of GPA through EU Different scope of coverage WTO s Committee of Government Procurement Judicial recourse? Lower levels of protection for contractors

BANKING AND FINANCE Impact on banks important to service users as well as providers Loans/other facilities Passporting branches Important for EU lenders can they still lend to UK borrowers? Important for UK subsidiaries can they still borrow from EU lenders?

BANKING AND FINANCE (cont d) A positive outcome if no UK legal changes Commercial lending not a regulated activity in the United Kingdom Passport/authorisation not required Outcomes? UK subsidiaries can continue to borrow directly from banks in EU home country (e.g., under parent guarantee)

BANKING AND FINANCE (cont d) UK subsidiaries could place deposits with EU head office of banks EU banks can continue their lending business in the UK Position less clear for investment services (MIFID II etc) since these require authorisation under UK law But do these services require passporting when provided to UK subsidiaries? Place of provision of service?

CONTRACTUAL ISSUES Brexit may have an impact on subsidiary contracts, especially if long-term Contract may have been made on implicit assumption that UK is part of EU Brexit will upset that assumption and create additional costs that one side may have to bear If contract is not explicit, who bears costs of tariffs etc?

CONTRACTUAL ISSUES (cont d) In extreme case, burdened party may seek to argue that Brexit has the effect of termination/frustration/force majeure with respect to the contract Unlikely to succeed May be specific clauses that deal with adverse cost issue Loan agreements may include a material adverse charge clause that could be triggered if Brexit has serious impact on business

CONTRACTUAL ISSUES (cont d) Contracts need to be reviewed/renegotiated if necessary For the future, consider whether existing standard forms are adequate/need Brexit revision

POSSIBLE AREAS FOR ACTION Employee audit Contracts audit Banking relationships Impact of tariffs Supply chain