Navigating Uncertainty of Brexit
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This document summarizes a panel discussion on navigating uncertainty related to Brexit. The panel discusses how Brexit will impact investing and doing business in the UK, access to talent, structuring and financing, and VAT and customs duties. Key points include concerns for US companies with UK subsidiaries, potential issues with talent retention and access due to changes in freedom of movement, and implications for VAT and duties depending on the final deal between the UK and EU. The panel provides analysis to help businesses understand and plan for potential effects of Brexit.
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Navigating Uncertainty of Brexit
- 1. NAVIGATING THE UNCERTAINTY OF BREXIT PLOT A COURSE FOR SUCCESS November 8, 2017
- 2. TODAY’S PANEL 1 John Stanford Moore Stephens Director, Consulting Services Mark Fagan, Moderator Citrin Cooperman Managing Partner, Norwalk CT Office & Co-Leader, International Strategy Group Kevin Phillips Moore Stephens Partner Nick Warner Moore Stephens Partner, VAT Merryck Lowe Moore Stephens Partner
- 3. UNCERTAINTY IN THE NEW NORMAL OF BREXIT Because even now, some politicians… say that the referendum isn’t valid, that we need to have a second vote… “But come on. The referendum result was clear. It was legitimate. It was the biggest vote for change this country has ever known. Brexit means Brexit – and we’re going to make a success of it.” - Theresa May, British Prime Minister Countries have always traded the most with their biggest, closest neighbours. This is by far the most reliable fact about international trade no matter which set of countries, time period or sector (Goods services, ecommerce, foreign investments) is looked at. - London School of Economics From a digital standpoint the UK is and will be one of the world’s key digital destinations and hard for investors to ignore. Investors are still looking to make deals, especially when the technology involved has significant commercial potential. - Damian Ryan, Moore Stephens 2
- 4. Uncertainty of any sort results in volatility, and Brexit will be no exception - Reghuram Rajan, Economist In Britain ever more, they will realize that Brexit, well, has consequences – economic, commercial, partnerships. Perhaps during the referendum the impression was given that once the Brexit button was pushed everything would take care of itself easily. Well, that is not true. - Charles Michel, Belgian Prime Minister The Eurosceptic genie is out of the bottle and it will now not be put back. EU’s finished, EU’s dead. - Nigel Farage, British Politician, Broadcaster, and Political Analyst Brexit could be catastrophic for the NHS. Even a Soft Brexit restricting free movement could cause problems with recruitment, financing, public health legislation and product licences. – The Lancet 3 UNCERTAINTY IN THE NEW NORMAL OF BREXIT
- 5. OBJECTIVES 01 03 04 05 06 OVERVIEW INVESTING AND DOING BUSINESS IN THE UK TALENT STRUCTURING, FINANCE, AND TAX VAT & CUSTOMS DUTIES This is a Q&A session, so please submit your questions. 02 A LITTLE BACKGROUND
- 6. A LITTLE BACKGROUND • What is the EU? • Are the two sides talking?? 5
- 8. OVERVIEW • Current Brexit timetable • Why has 18 months gone by without much happening? • Why is the impact still unclear? • Will a change in leadership in the UK affect Brexit? 7
- 9. WHAT WAS THE DECISION? • 23 June 2016 – Decision to leave the European Union • But what is the European Union? • Single market of (currently) 28 countries • Based on 4 fundamental freedoms of movement • Goods; Services; People; Capital • European Court of Justice (ECJ) has authority over member states • As part of the EU we have: • Customs union (allowing tariff-free goods and services) • Passporting of financial services • Right to work in any EU state 8
- 10. BREXIT TIMETABLE 9 Brexit March 17 Terms, June 17 Signed, Mar 19 Outline, Dec 17 EU Parliament, Oct 18 ? UK EXIT, April 19 Negotiation Ratification
- 11. WHY IS IT TAKING SO LONG? The Pre-Negotiation Requirements 10 • Citizens Rights • Irish Border • ‘Divorce Bill’ • “…the UK will honour its commitments made during the period of our membership. (However) We are not yet at the stage of specifying exactly what these commitments are!” (Theresa May, Florence, Sept 2017) David Davis Secretary of State for Exiting the European Union Michel Barnier Chief Negotiator the European Commission
- 12. THE OPTIONS EU membership EEA membership EFTA membership Customs union WTO Seat at Table (EU Council) Single Market (Services) Free movement of people Contributions to EU Budget Single market in goods 11
- 13. INVESTING AND DOING BUSINESS IN THE UK
- 14. INVESTING AND DOING BUSINESS IN THE UK 13 • Concerns for US based companies with subsidiaries in the UK? • If the UK subsidiary is a hub for the European business, how will Brexit affect this dynamic? • What should US companies be considering before investing in the UK?
- 15. VAT & CUSTOMS DUTIES
- 16. VAT & CUSTOMS DUTIES 15 • Single Market introduced in 1993 – B2B goods “acquisitions” replace imports : no VAT payable at import no duty payable between EU Member States free circulation within EU in most circumstances • B2B Services “destination” principle (VAT payable where customer belongs) • B2C e-services “One-stop-shop” : no need for multi-territory VAT registrations • Post-Brexit (depending on type of deal) no change for imports into UK from non-EU sources but goods for re-sale into the EU from UK potentially liable to duties and VAT now payable at import (i.e. cash-flow funding)
- 17. STRUCTURING, FINANCING, & TAX
- 18. STRUCTURING, FINANCING, & TAX 17 • Will Brexit impact the legal structures that exist for US companies operating in the UK and EU? • UK is and will remain a very attractive regional holding company location for US investors into Europe • UK’s tax rate of 19% (falling to 17% in 2020) is unaffected • It will continue to be tax-efficient to earn taxable profits in a UK holding company rather than its EU subs • Currently, EU Tax Directives guarantee no withholding taxes on dividends and interest from EU subs to UK parent • If the UK ceases to benefit from these post-Brexit, it can fall back on its double tax treaties • In most cases, these provide similar exemptions – worst case, a 5% WHT on dividends.
- 19. • Treatment in US as before • Dividend from Swiss sub. exempt in UK • No UK WHT on dividends paid to US parent • Swiss federal and cantonal tax at (say) 15% • Swiss WHT on dividend to UK at 35% under domestic law • Exempt under Swiss-EU savings agreement US parent company Swiss subsidiary company UK intermediary holding company US parent with UK sub with European sub 18
- 20. TALENT
- 21. TALENT 20 • How will Brexit impact access to talent? • Will there be retention issues for EU staff living and working in the UK?
- 23. THANK YOU Look out for an invitation to join us for our next Brexit webcast which will give an update on progress made and how this affects businesses.
- 24. APPENDIX
- 25. MARK FAGAN CPA Managing Partner, Norwalk, CT Office (203) 847-4068 mfagan@citrincooperman.com Mark Fagan is the managing partner of Citrin Cooperman’s Norwalk, Connecticut office. He is also the leader of Citrin Cooperman’s International Strategy Group and serves as a member of Citrin Cooperman’s Executive Committee and the Firm's Audit and Attest Committee. With over 25 years of audit, tax, and business advisory experience, he serves clients in a wide range of industries, including technology, financial services, private equity, manufacturing and distribution, and construction. Mark’s clients range from privately held middle-market firms to larger, complex, multi-national organizations. Mark specializes in counseling businesses and CEOs in the areas of business formation, profitability enhancement, revenue recognition, and mergers and acquisitions. As leader of the International Strategy Group, Mark also specializes in working with global and globally-minded companies to help them navigate cross-border concerns, including guidance around accounting standards and compliance requirements, transactions, and growth strategies, and works closely with firm resources and Moore Stephens member firms to coordinate access and services in the local regions where these clients do business. 24
- 26. JOHN STANFORD Director IT Consulting +44 (0)20 7334 9191 john.stanford@moorestephens.com John is a Director within the Moore Stephens Governance, Risk and Assurance (GRA) group with a specific focus on Business Transformation, IT Change Assurance and Programme Management. He heads up the consulting Services function with teams working on programmes in Europe, Africa and the Middle East. Previous experience within Moore Stephens included the role of Delivery Director for Moore Stephens Consulting with responsibility for software delivery across the application development and business intelligence teams. John is a certified DSDM Practitioner and remains a hands-on project manager and project consultant with a track record of delivery across a number of business sector, both private and public. 25
- 27. MERRYCK LOWE Partner +44 (0)20 7651 1766 merryck.lowe@moorestephens.com Merryck has 25 years’ experience as both an adviser on corporate transactions, investigations and disputes, and as an expert in the course of legal proceedings. He has advised in relation to matters conducted under international arbitration and litigation in the UK, Europe and the USA and in connection with regulatory breaches (including financial services and competition law). He has extensive expert witness reporting and testimony experience, before UK Courts and International Arbitration Tribunals in France, Germany and the United States. He has been engaged in cases involving parties from across the globe from the West and East Coasts of the USA, across Northern, Central and Eastern Europe (Netherlands, Norway, Sweden, France, Germany, Switzerland, Czech Republic amongst others) under LCIA and ICC rules. His arbitration expertise is extensive, including some well publicized and a number of confidential and sensitive disputes, amongst them Agfa Gevaert (a Belgium German multinational) v AgfaPhoto Holding GmbH and AgfaPhoto GmbH, a series of arbitrations under the Rules of the International Chamber of Commerce (ICC) held in Frankfurt, under Swiss and German Law. Merryck graduated with 1st class Honors in Physics from Oxford University and is a Fellow of the Institute of Chartered Accountants in England and Wales, originally qualifying and obtaining his audit qualification with Price Waterhouse (now PwC). Merryck is past President of the Institute of Chartered Accountants in the English Region of West Yorkshire and is a current member of the London Society of Chartered Accountants’ management committee. 26
- 28. KEVIN PHILLIPS Partner +44 (0)20 7334 9191 kevin.phillips@moorestephens.com Kevin is a partner in the Moore Stephens Business Tax team. He has nearly 30 years' experience in corporate tax, the last 12 specializing exclusively in international tax. Kevin works across a wide range of industries, the key tax issues typically being more dependent on the territories involved than the specific industry. He does however, have particular experience of the energy, mining and renewables sector. Kevin's work includes the tax-efficient structuring and financing of both overseas operations of UK companies, and UK operations of foreign multinationals. His clients have included a number of large, listed UK companies, as well as the UK subsidiaries of listed US companies. Kevin is a regular presenter at seminars and has also appeared on television and been quoted in the press on international tax matters. He also regularly contributes letters and articles on topical international tax developments to various professional journals. 27
- 29. NICK WARNER Partner VAT +44 (0)20 7334 9191 nick.warner@moorestephens.com Nick is a VAT specialist in Moore Stephens with a particular focus on the insurance sector. He has worked in VAT for over 25 years, including five years each at Guardian Royal Exchange (now part of Axa) and Zurich Insurance. Nick is a recognized specialist in insurance, advising household name insurers, brokers and outsourcers on all matters to do with VAT and Insurance Premium Tax (IPT). He also has wide experience in the real estate sector, particularly care homes, and in hotels and leisure. He is a member of the Chartered Institute of Tax, and part of HM Treasury’s VAT and Financial Services stakeholder group. He regularly writes and lectures on VAT and IPT issues in the Insurance sector. 28
Editor's Notes
- MARK FAGAN WILL KICK OFF Good morning, and welcome to our Webinar – This is the first in a series of webinars we are giving to help business owners understand how and when Brexit will affect doing business in the UK and beyond. The webinar is a collaboration between Citrin Cooperman and Moore Stephens, our International Association who we work with constantly on many joint projects and clients.
- MARK FAGAN Todays panel – I will be moderating the panel of 4 experts from the Moore Stephens London office. All are heavily involved in understanding and consulting with their clients as they navigate BREXIT. They are… John Stanford, a Director within the Moore Stephens Governance, Risk and Assurance group with a specific focus on Business Transformation, IT Change Assurance and Programme Management. Kevin Phillips, a partner in the Moore Stephens Business Tax team. Specializing over the last dozen years exclusively in international tax. Kevin's work includes the tax-efficient structuring and financing of both overseas operations of UK companies, and UK operations of foreign multinationals. Nick Warner, a VAT specialist with over 25 years of experience with VAT. Nick has a particular focus on the insurance sector, and also has a wide experience in the real estate sector, particularly care homes, and in hotels and leisure. Merryck Lowe, Merryck is a partner and focuses on expert witness evidence, specialist investigations, regulatory and competition disputes, transaction disputes, pre- and post-transaction reviews, valuations, investigation of alleged fraud and expert determination.
- MARK FAGAN This slide and the next show some views on Brexit. The first from Theresa May, the Prime Minister is interesting. Almost needed to re-affirm – yes, Brexit happened, and we are going to do it. But there is a lot of confusion right now as far as what is happening? And Damian Ryan notes, from a practical matter, the UK isn’t going away, so how will commerce change?
- MARK FAGAN Here are a few more. One thing is for sure – the opinions are as varied as the path of Brexit. Today, and in this series, we hope to keep you informed as the path becomes more clear.
- MARK FAGAN So here are the objectives of today’s webinar. First, for our audience in the States, we will refresh your memory on Brexit, then we will have an overview and status, of Brexit as we know it now. So lets get right to it.
- What is the EU? The European Union - often known as the EU - is an economic and political partnership involving 28 European countries. It began after World War Two to foster economic co-operation and frankly, to help prevent another World War. It has since grown to become a "single market" which allows goods and people to move around, basically as if the member states were one country. It has its own currency, the euro, which is used by 19 of the member countries, its own parliament and it now sets rules in a wide range of areas - including on the environment, transport, consumer rights and even things such as mobile phone charges.
- Brexit talks are under way They finally, officially, started on 19 June, 2017. Here's a picture from that first session: The UK and EU negotiating teams meet face-to-face for one week each month. Their first tasks are trying to get an agreement on the rights of UK and EU citizens after Brexit, reaching a figure for the amount of money the UK will need to pay on leaving, the so-called "divorce bill", and what happens to the Northern Ireland border. Who are the players: For the UK: Theresa May, Prime Minister of the United Kingdom. Her June 8 snap election, which left her without a majority in the House of Commons, has raised doubts over whether she will even be able to see the two-year process through. She will not take part in day-to-day negotiations but is expected to set Britain’s approach and have the final say on any compromises or concessions. David Davis – The Brexit Secretary will lead negotiations for the U. K. For the EU: Me – Shell Barney-ay -- The European Commission chief negotiator will be across the table from Mr. Davis. He has been given a mandate by the leaders of the remaining EU27 states to focus initially on the 3 key elements of the withdrawal package I just mentioned.
- MARK FAGAN So John why don’t you take us through the overview.
- 23 June 2016 – Decision to leave the European Union Last year’s referendum was a simple ‘Yes/No’ question for what was arguably the most complex political problem of our generation. Setting aside the over-simplification of the issue, let’s consider the impact of the decision and gain an understand of the what we are leaving and what we need to replace But what is the European Union? Single market of (currently) 28 countries – grown from the original members over the past 40 years. Based on 4 underlying principles, the fundamental freedoms of movement Goods; Services; People; Capital European Court of Justice (ECJ) has authority of member states – this provides an overarching authority regarding the laws governing the 4 principles As a result of being part of the EU we have: Customs union (allowing tariff-free goods and services) – in other words, good received into, or initiated within, an EU country are not subject to additional tariff when moved from one EU country to another. Passporting of financial services – this includes recognizing the qualifications of industry professionals and the standards they use such that services can be provided cross-border without further control or authorisation Right to work in any EU state – this focuses on the right to move freely across borders knowing that there is a retention of human rights and workers rights with a consistency in which such rights are applied
- So, since the June 16 referendum the next step was to kick-start the formal exit process – which the government did in March this year. Under the Lisbon Treaty, the UK triggered Article 50 which started this 2-year process. The EU Council then agreed the terms under which the discussions are to take place Part of this involved the pre-conditions that needed to be met before formal negotiations could start. These preconditions include Citizens Rights, the Irish Border and the Cost of Exit (the Divorce Bill) Assuming this is agreed at the end of this year, that leaves us 10 months to perform negotiations across all the complex areas of withdrawal from the EU. We then have to provide the full deal to the EU Parliament in Oct 18 Parliament and the EU Council will then agree the terms through the Ratification process If all is ok the UK Government presents the Bill to the UK Parliament in March 2019 at which point it will signify the end of the process (if agreed). MARK QUESTION TO JOHN – How does it pass thru Parliament – simple majority or something else? The UK then exits the EU on these terms MARK QUESTION TO MERRYCK – What happens if they don’t finish by March of 2019 - can they extend the 2 year time period and would they? MARK QUESTION TO MERRYCK – Could members of Parliament block an EU exit?
- Citizens Rights The requirement to look at the rights of 3 million EU citizens living and working in the UK plus 1 million UK citizens in the EU. Main issues involve the agreement to allow ‘extended families’ to assume the same rights and enshrining EU law into UK law (Direct Effect) – the problem being that UK citizens could end up with less rights than EU citizens in the UK. Irish Border The issue of allowing frictionless trade via the landbridge between Northern Ireland and the Republic (the only one between the UK and Europe). The current arrangements have helped to ease the difficulties across the Irish border, there is no desire to return to the days of suspicion and isolation. MARK QUESTION TO KEVIN – Will passports be needed to travel into Northern Ireland? MARK QUESTION TO KEVIN – What about Scotland – they actually voted to stay in the EU. Divorce Bill EU estimates that UK owes $37bn in budget commitments (RAL) on top of $23bn Theresa May offered as part of 2-year transition deal MARK QUESTION TO JOHN – What goes into calculating the Divorce Bill? In other words, what will this money be used for? Mr Barnier first called for his existing negotiating “guidelines”, which rule out transition talks, to be relaxed last Friday and despite having the support of “almost all” countries he was firmly rebuffed by Germany, France and Romania in a decision that requires the consensus of all EU 27 governments. Brexit Impact Studies were being performed at the end of 2016. Since then the Government has steadfastly refused to publish these reports
- Taking a look at the various options: Remaining within the EU – all conditions met Norway option – EEA Membership Full access retained with the EU regarding the 4 guiding principles, but with a reduced bill – on the basis that Norway has to accept all EU rulings. Ie no say in due process. Swiss Option – EFTA Membership Focuses on the movement of goods and people but there is no access to movement of services. Therefore, not constrained by regulations but does not allow for passporting of financial services Turkish option – customs union Accepts EU treaties but cannot create new laws without EU agreement New laws to parallel the EU Accepting of ECJ rulings Opens Turkey up to import of EU goods – arguably with a higher level of quality than their own. MARK QUESTION TO JOHN – What’s going to happen to all the EU laws in force in the UK? MARK QUESTION TO JOHN (if necessary) – What happens if there is no deal with the EU?
- MARK QUESTION TO NICK – What type of Brexit is the business community hoping for? MARK QUESTION TO NICK – What is the Labour party’s position on Brexit?
- MARK QUESTION – How could Brexit affect company operations? Merryck – can you give examples of the impact on people? John – can you give examples of the impact on goods?
- MARK QUESTION TO NICK – So Nick, how does this movement effect businesses pre- vs. post-Brexit as it relates to customs and duties?
- MARK QUESTION TO KEVIN – We’re now getting into structure, finance and tax – but what’s interesting is besides the pound deteriorating since Brexit, the UK’s economy has done quite well hasn’t it Kevin? Are you surprised? MARK QUESTION TO KEVIN – So in addition to VAT and customs, Brexit will have an impact on corporate and withholding taxes. Kevin, how are you advising your clients at this point?
- Link to UK/US tax treaty https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/507431/usa-consolidated_-_in_force.pdf
- MARK QUESTION TO MERRYCK – Currently there is 1.2M UK citizens living elsewhere in the EU and 3.1M EU citizens living in the UK. Merryck, what’s going to happen to all these people?
- MARK QUESTION TO MERRYCK – Will UK citizens need VISA’s to move around the EU?
- MARK QUESTION – Will the UK be able to rejoin the EU in the future?