Question assumptions for forecasts/budgets
The following points have the greatest urgency:
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Companies with trade relations with the United Kingdom must check whether they have sufficient personnel capacities to deal with the consequences associated with a Brexit or whether they still need to build them up. In particular, due to the changes in customs and VAT law for imports and exports, there is an increased need for appropriately trained staff for these areas. Alternatively, such areas of responsibility can also be covered by external service providers, but this again entails asking the question and the planning of potentially additional costs.
If there is a specific need for employees from the UK, companies must consider what impact Brexit will have on existing or future employment relationships.
Conversely, EU parent companies with UK subsidiaries employing workers from EU countries may need to monitor further developments in the UK. The UK Migration Advisory Committee recommends in its final report on immigration from the EEA region that EU skilled workers should be retained and immigration facilitated, while there should be no special arrangements for low-skilled workers. Implementation of the recommendations would have a significant impact on many employers, especially in sectors with a high proportion of EU nationals, such as hospitality, healthcare, food production, retail and construction. Indirectly, this may potentially have an impact on the Group as a whole.
After Brexit, further legislation in the sending country as well as that in the UK regarding the future treatment of employees from EU member states must be monitored and long-term measures considered. To be noted the TCA aims at ensuring a number of rights of EU citizens and UK nationals. This concerns EU citizens working in, travelling or moving to the UK and to UK nationals working in, travelling or moving to the EU after 1st January 2021.
5. Keep personnel planning under review
How can delays in import or export be minimised?
Is the construction of warehouses necessary to ensure supply chains?
How will additional warehouses and increasing working capital requirements be financed?
What are the ageing risks associated with the possible expanded stocking of seasonal or perishable products?
Are the terms of supply contracts appropriate and sufficient? For example, which party will bear the costs of delays, price changes, exchange rate risks and additional tariffs (if any)?
Is there a risk of delays for important services, for example spare parts and maintenance services, if these are provided by business partners in the UK?
What is the impact of Brexit on the responsibilities in a supply chain for EU companies? What other obligations will companies sourcing goods from the UK face if they are considered importers for the purposes of EU product legislation in the future?
Are they still realistic?
Are they well weighed?
What would be the consequences if the assumptions are thoroughly off the mark?
What management decisions are made based on current assumptions?
Many companies have already reviewed their supply chains and the possible impact of Brexit. Before the conclusion of the TCA companies will more than likely have looked at the rules regulating the export of goods to third countries with which the EU has concluded a free trade agreement and where exporters can claim a preferential rate of duty. The prerequisite, however, is that the goods have sufficient "EU content" according to the rules of origin. To do this, companies must know the economic origin of all the products and components they use; in other words, they must know where they are manufactured. This now needs to be considered in the context of the actual provisions of the TCA.
In accordance with the TCA, businesses wil have to consider whether and how a UK or EU contribution to a manufactured product will be considered. Companies should therefore continue to review their supply chains and begin to classify any UK or EU contributions accordingly if they wish to ensure that their products are to have sufficient preferential origin. Keep personnel planning under review
Companies with trade relations with the United Kingdom must check whether they have sufficient personnel capacities to deal with the consequences associated with a Brexit or whether they still need to build them up. In particular, due to the changes in customs and VAT law for imports and exports, there is an increased need for appropriately trained staff for these areas. Alternatively, such areas of responsibility can also be covered by external service providers, but this again entails asking the question and the planning of potentially additional costs.
If there is a specific need for employees from the UK, companies must consider what impact Brexit will have on existing or future employment relationships.
Conversely, EU parent companies with UK subsidiaries employing workers from EU countries may need to monitor further developments in the UK. The UK Migration Advisory Committee recommends in its final report on immigration from the EEA region that EU skilled workers should be retained and immigration facilitated, while there should be no special arrangements for low-skilled workers. Implementation of the recommendations would have a significant impact on many employers, especially in sectors with a high proportion of EU nationals, such as hospitality, healthcare, food production, retail and construction. Indirectly, this may potentially have an impact on the Group as a whole.
After Brexit, further legislation in the sending country as well as that in the UK regarding the future treatment of employees from EU member states must be monitored and long-term measures considered. To be noted the TCA aims at ensuring a number of rights of EU citizens and UK nationals. This concerns EU citizens working in, travelling or moving to the UK and to UK nationals working in, travelling or moving to the EU after 1st January 2021.
4. Determine the origin of goods
An AEO (Authorised Economic Operator) authorisation makes imports and exports easier and faster. This will be crucial especially for traders and manufacturers with complex supply chains.
Any company can apply to the national customs authority for trade with third countries to reduce the risk of business disruption after Brexit.
In addition, businesses can enquire with the national customs authority about what customs simplifications and facilitations, such as security deposits and transit simplifications, are available.
AEO status granted by the UK will no longer be valid in the EU. Companies must therefore clarify with their British suppliers and service providers how possible delays etc. can be avoided or at least kept to a minimum.
1. Apply for AEO Status
Businesses with supply relationships to the UK should check whether they have, or may still need to apply for, post-Brexit VAT registration there.
If the business is registered (only) in the UK for Mini One Stop Shop (MOSS) VAT, it should also register in a Member State in the rest of the EU.
Furthermore, if not already familiar from other business relationships, businesses will have to adapt to trading relationships with a third country. For example, the rules for declaring and paying VAT (for example, for the provision of electronic services) and for cross-border VAT refunds will change. The simplified VAT procedure for the movement of goods in the EU (triangular transaction) will also cease to apply.
2. Check local VAT registrations
Many companies have already reviewed their supply chains and the impact of Brexit when importing and exporting goods. But was the audit really thorough enough? Among others, the following questions need to be considered:
3. Secure supply chains
These questions may be more easily answered in the context of the new Trade and Cooperation Agreement but this was only signed on the 24 December 2020 and the full text published on 26 December 2020 the first and most important step is to think about them.
Is the existing group structure still appropriate after Brexit?
Following the US corporate tax reform and the changes brought about by the OECD's BEPS action plan to avoid profit cutting and profit shifting, companies and their managements may be dealing with such questions anyway.
The UK will no longer benefit from the European Parent-Subsidiary Directive in the future. Dividends and interest flows between the UK and EU member states may be subject to withholding tax. Only 17 of the 27 tax treaties between the UK and other EU member states provide for an exemption from withholding tax.
Groups should therefore consider whether they can restructure themselves so that dividend and interest flows between their subsidiaries/branches in EU member states and the UK can benefit from a withholding tax exemption. Ultimately, however, such measures must also make economic sense.
6. Check corporate structure
All companies rely on forecasts for key management decisions, such as budgets, valuations, impairment tests, tax planning, going concern valuations. Apart from very short-term forecasts, all forecasts implicitly or explicitly include assumptions about Brexit. Whatever assumptions are used, they should be thoroughly checked to see whether they adequately take into account the impact of the TCA.
7. Question assumptions for forecasts/budgets
By examining forecasts and preparing sensitivity analyses (including worst-case scenarios particularly in relation to the impact of actual supply chain friction), it is possible to identify the areas where further action and contingency planning may be required.
The current UK Data Protection Act (2018) does not meet EU standards for an adequacy decision. Therefore, when the UK leaves the EU (and without an EU-approved agreement on UK data protection standards), businesses in the UK would still be able to send personal data to partners in the EU, but those partners would no longer be allowed to send personal data back to the UK without additional safeguards.
At the end of January 31, 2020, the transition period will end, and the United Kingdom will be considered a so-called 'third country', i.e. a country outside the European Economic Area (EEA). In order to transfer personal data to a third country, the special requirements of Art. 44 et seqq. DSGVO must be complied with. According to Art. 45 GDPR, the EU Commission can issue an adequacy decision. Thereby, the data protection standard in a third country is declared to be comparable to that within the EEA and data transfers are permitted without further ado.
Unfortunately, the deal that has now been reached does not include such an adequacy decision. Nevertheless, it was decided to maintain the current data protection situation between the European Union and the United Kingdom for a further transitional period of a maximum of six months. During this transitional period an attempt will be made to lay the foundations for issuing an adequacy decision. It remains to be seen whether this will happen, especially since this topic is highly controversial among data protection experts. Therefore, it cannot be ruled out that other instruments such as the standard contractual clauses will have to be used for data transfers to the United Kingdom after the renewed transition period - as it is currently the case for data transfers to the United States.
Until then, nothing will change in terms of data protection law. We will inform you in good time what the situation will be in six months' time. We will be happy to support you with the necessary precautions to be taken until then.
8. Adjust transmission of personnel data
To protect health, safety and the environment, EU regulations impose restrictions on the import or export of certain goods to or from third countries. This applies, for example, to live animals, products of animal origin, and certain plants and plant products such as wood packaging. For certain goods, import or export is subject to authorization or notification, e.g. radioactive substances, waste or certain chemicals. After Brexit, goods destined for or coming from the UK will be subject to these EU regulations. Companies should therefore initiate the necessary measures to ensure compliance with EU import and export bans and restrictions. The TCA does not regulate or cover the assessment of the UKs sanitary and phytosanitary regime for the purpose of listing it as a third country allowed to export food products to the EU. This is expected to remain a unilateral decision of the EU and it is not currently anticipated that this will be subject to negotiation.
9. Monitor import and export restrictions
If a businesses’ activities are based to a significant extent on certificates, licenses or permits issued by authorities or other bodies in the United Kingdom or whose holder is a person resident there, their validity needs to be considered in the context of the TCA. This applies in particular, to certificates, licenses and permits for goods (e.g. in the automotive or medical devices sectors) and for services (e.g. in the transport, broadcasting or financial sectors). In particular to be noted on trade in services, the EU and the UK have agreed to a level of openness going beyond the provisions of the WTO General Agreement on Trade in Services (GATS), but reflecting the fact that the UK will no longer benefit from the freedom to supply services across the EU. In addition, the TCA completely omits the financial sector. British firms are now waiting for the EU Commission to recognise the British regulatory framework for financial services as equivalent to European conditions in order to continue offering certain services from London.
10. Check certificates/licences
Question assumptions for forecasts/budgets
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Apply for AEO Status
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Check local VAT registration
2
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Secure supply chains
3
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Determine the origin
of goods
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Keep personnel planning under review
5
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Check corporate structure
6
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Question assumptions for forecasts/budgets
7
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Adjust transmission
of personal data
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Monitor import and export restrictions
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Check certificates/
licences
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