Discussions about Brexit are plunging the British government into crisis
Yesterday, a few days after British Prime Minister Theresa May announced a new move towards a soft Brexit including a customs union with the EU following a marathon session, the responsible Minister David Davis resigned from office with immediate effect.
He cited the new position of the British government as justification and complained that Britain was thereby negotiating a weak bargaining position. Davis is regarded as the champion of a tough Brexit and had already threatened to resign in recent months if the government doesn’t make a clear break with Brussels. A few hours after Davis’ departure, in a dispute with the Prime Minister, British Foreign Secretary Boris Johnson also threw in the towel about the direction the Brexit is taking.
In the light of current developments, experts are wondering if there will be any point to Theresa May’s victory over the hardliners in the Cabinet in the coming weeks. Many of them suspect that the Brexit rollercoaster ride of the past few months is going to continue for the time being.
Planning remains difficult for international companies, so it’s advisable to prepare for all sorts of scenarios.
Possible scenarios for Brexit
A free trade agreement based on the Canadian model
Britain and the EU conclude a free-trade agreement. Duty-free trade between the UK and the EU would be possible.
Great Britain becomes a member of the European Economic Area (Norwegian model)
Britain retains partial access to the European internal market, for instance the free movement of persons, goods, services and capital.
Bilateral integration contract along the lines of the Swiss model
Britain retains access to some areas of the internal market and must comply with EU social, labour and product regulations.
Hard Brexit without access arrangements
Brexit hardliners would certainly welcome this variant. Free of all EU rules, the UK could conclude trade agreements with countries worldwide and trade with the EU through the World Trade Organization (WTO). However, the British administration would be completely overwhelmed by the exorbitantly increasing customs clearances.
Many Britons want the Brexit to be reversed. However, this variant is unlikely, since the leadership of both Tories and Labour are essentially sticking to the EU exit, even with all their differences of opinion on how the Brexit should be done.
Possible legal, tax and personnel policy consequences
Depending on what concrete form Brexit negotiations between Great Britain and the EU take, different scenarios with different legal, personnel and fiscal consequences are conceivable. Regardless of the specific scenario, we expect complex changes that companies will need to be well prepared for.
Customs activities and administrative processes are likely to become more complex after Brexit, and the cost of goods exchange between EU countries and the UK is likely to increase. For example, following Brexit, the UK is no longer bound by European VAT regulations in Europe, which increases the risk of double taxation.
Cross-border restructurings of cross-EU corporate groups such as legal mergers, unbundling or cross-border implementation are based on common EU law. Many countries within the EU don’t provide for legal mergers with legal entities outside the EU in their own corporate legislation. It’s completely unclear what legal status EU cross-company groups will have in the future.
Intellectual property rights are also under pressure after Brexit. It may be useful and necessary to have property rights registered not only in the EU but also in the UK.
The Brexit has consequences for the labour market. One of the main motivations for Brexit was the British government’s goal of stopping the free movement of people to Britain. While the UK emphasises that access should be granted to students and highly educated immigrant workers, we advise companies to analyse the potential impact on their workforce, work and residence permits and their hiring of new employees.
Time is running out
On 28 March 2019, the transition period for the UK expires. Time is running out for an agreement and new regulation of relations between the UK and Brussels. Otherwise, from then on, the UK will only have the same rights as any other third country. An extension of the transitional period is only possible if Great Britain applies to the EU and all 27 remaining member states agree to it.
Make sure that your company is prepared for all possible variants of Brexit. We would be happy to meet you and tell you what we can do for you during a non-binding session.