Brexit update: New legislation, UK companies with branches in EEA & EU legal professional privilege

By December 29, 2020News

Brexit and the UK Parliament

The UK Parliament has been very busy considering Brexit-related legislation, including the following four Bills which have now received Royal Assent and have, therefore, been enacted into law: the UK Internal Market Bill, the Private International Law (Implementation of Agreements) Bill, the Taxation (Post-transition Period) Bill and the Trade (Disclosure of Information) Bill. In addition, the UK House of Lords has proposed amendments to the Trade Bill to require greater parliamentary oversight of the implementation of trade agreements, and the UK Government has clarified the relationship between the UK Internal Market Act 2020 and the development of common frameworks between the UK Government and the UK devolved administrations.

The work undertaken by the UK Parliament, as described above, should certainly influence the way in which Brexit is implemented in the UK as the UK takes back powers formerly exercised by the EU and it is worth summarising some of the new UK legislation as follows:-

>>>  The UK Internal Market Act 2020 – This Act is intended to facilitate the smooth development of the internal market for goods and services in the UK (including provisions about the recognition of professional and other qualifications) and to make provision in connection with provisions of the Northern Ireland Protocol relating to trade and state aid;

>>>  The Private International Law (Implementation of Agreements) Act 2020 – This Act is intended to implement domestically in the UK the Hague Conventions of 1996, 2005 and 2007 and to provide for the implementation of other international agreements on private international law;

>>>  The Taxation (Post-transition Period) Act 2020  – This Act is intended to make provision with regard to certain customs and excise and VAT and other matters, particularly in relation to the implementation of the Ireland / Northern Ireland Protocol to the UK-EU Withdrawal Agreement, which are necessary to prepare for the ending of the post-Brexit transition period on 31st December 2020; and

>>>  The Trade (Disclosure of Information) Act 2020  – This Act is intended to make provision about the disclosure on a confidential basis of information relating to trade by the UK HM Customs & Excise or by other UK central government and other public authorities to other central governmental entities or other public authorities (including the UK devolved administrations) for the purpose of facilitating the exercise by the recipients of their functions relating to trade.

The jigsaw puzzle of new legislation to implement the post–Brexit transition period regulatory regime in the UK is clearly being put together, though gaps may well remain and would need to be put in place in due course.

Brexit and Setting-Up or Maintaining Branches or Subsidiaries in the European Economic Area (EEA)

UK companies setting up or maintaining branches or subsidiaries in EEA countries after the ending of the post-Brexit transition period on 31st December 2020 will have to check out closely the local laws of the EEA counties concerned to see what new local company law requirements they will have to comply with from thereon, bearing in mind that the UK will have the status of a “third country” like other non-EEA countries after the transition period (subject to the terms of any “deal” that may be agreed between the UK and the EU/EEA to the contrary).

The new company law compliance requirements may include the following:-

  1. The duty to appoint one or more EEA-resident directors to a subsidiary incorporated in an EEA country – this requirement (if any) varies from one EEA country to another but as the UK will no longer be part of the EEA, a UK-resident director would be unlikely to satisfy such requirement (unless, for instance, there are “grandfathering” provisions in relation to pre-existing companies as at the end of the post-Brexit transition period). Some EEA countries (such as Ireland) may have workarounds or exemptions from the EEA-resident director requirement (such as, in the case of Ireland, the ability to post an insurance-backed bond or to apply for an exemption on the basis that the subsidiary concerned has a “real and continuous” link with the EEA country concerned anyway) but this would need to be checked out on a case by case basis. The same sort of issues may apply in the case of a locally-EEA registered branch of a UK company to the question of whether an EEA-resident representative needs to be appointed and/or registered for such branch;
  2. New accounts filing requirements for EEA subsidiaries and branches of UK companies, bearing in mind that they might no longer be able to take advantage of exemptions or relaxations benefiting companies or branches with EEA parent companies or establishments;
  3. Restrictions on abilities to align the financial year end dates of EEA subsidiaries or branches with those of EEA parent companies or establishments, as the UK would no longer be an EEA member state; and
  4. Having to rely on traditional methods of completing EU cross–border company mergers as the special EU cross-border merger regime would in principle no longer apply to UK companies.

For completeness, it is worth mentioning that EEA companies setting up or maintaining subsidiaries or branches in the UK should also check out any changes to local requirements in the UK , bearing in mind that the UK would no longer be part of the EEA single market after the end of the post-Brexit transition period. The UK Companies Registry issued some useful guidance on this subject (in particular in its guidance note dated 31st January 2020), which may be accessed via its website at www.companieshouse.co.uk. As of 21st December 2020, there is no legal requirement to have a UK resident director or representative for UK companies or UK branches of overseas companies, though without a UK-based director or representative it may be difficult in practice to open a bank account in the UK or to undertake certain other activities.

Brexit and the View from Brussels

Although the negotiations between the UK and the EU for a new post-Brexit transition period relationship have been protracted, it should not be forgotten that the UK and EU have a mutuality of interest in finding ways to co-operate with each other, not only in trade but across a whole spectrum of other subjects.

Language and tone can be important here and certainly the official view from Brussels continues to be one of constructive engagement with the UK, or at least it so appears judging from one of the official websites of the EU (accessible at www. ec.europa.eu) which is entitled “The European Union and the United Kingdom – forging a new partnership” and which dedicates itself to giving information “about preparations for an ambitious EU-UK partnership, going well beyond trade, and about ongoing readiness measures”.  The language echoes the non-binding UK-EU Political Declaration (PD) of 19 October 2019 ,which sought to establish “the parameters of an ambitious, broad, deep and flexible partnership across trade and economic co-operation with a comprehensive and balanced Free Trade Agreement at its core, law enforcement and criminal justice, foreign policy, security and defence and wider areas of co-operation” (paragraph 3 of the PD).

On 16th November 2019, the EU Commission set up a “Task Force for relations with the UK” (UKTF), as part of the EU Commission’s Secretariat- General, whose task (according to the same official EU website) is to co-ordinate “all the [EU] Commission’s work on all strategic, operational, legal and financial issues related to the UK’s withdrawal from the EU, in full respect of European Council guidelines. This includes the negotiations on the future relationship with the UK, the implementation of the Withdrawal Agreement, as well as the Commission’s “no deal” preparedness work”.

In this context, the EU Commission issued a Communication on 10th December 2020 with (according to the same official EU website) “a set of targeted contingency measures to prepare for a possible ”no deal” scenario on 1st January 2021. These measures are limited to ensuring basic air and road connectivity between the EU and the UK, as well as allowing for the possibility of reciprocal fishing access by EU and UK vessels to each other’s waters”.  The issue of the Communication in itself, however, would seem to reflect a genuine understanding on the part of the EU that it is in neither side’s interests for there to be a chaotic departure by the UK from the EU Single Market.

The view from Brussels is clearly (as one would expect) that the EU has to protect its own interests in its negotiations with the UK but with an apparent recognition that a good deal for the UK is also a good deal for the EU and vice versa.

(Though this blog was written prior to the announcement of a UK-EU “deal” on 24th December 2020, that “deal” has not yet been formally approved by the UK and EU’s constitutional authorities, as at 26th December 2020.)

Brexit and Implementing the Northern Ireland Protocol

Whilst the UK-EU negotiations for a new post-Brexit transition period have proved challenging, agreement has been reached separately between the two sides on implementation issues arising from the Northern Ireland Protocol to the Withdrawal Agreement. It is worth examining for future reference how that agreement came about and how it has been reflected in the decision – making mechanisms set up by the Withdrawal Agreement.

An updated announcement dated 18th December 2020 from the UK Government Cabinet Office describes the chronology of events and states:-

“On 10 December [2020] the Co-Chairs of the Withdrawal Agreement Joint Committee reached an agreement in principle to address the outstanding issues related to the implementation of the Withdrawal Agreement, in particular the Northern Protocol.

The Northern Ireland Protocol Command Paper [dated December 2020 and issued by the UK Government] outlines further details; as well as further information on the UK Government’s work to implement the Protocol and support businesses as it comes into force. This paper was laid in Parliament on 10 December [2020].

The decisions contained in the Co-Chairs’ agreement in principle were agreed to at the Joint Committee meeting on 17 December [2020]. These papers [attached to the UK Government Cabinet Office announcement] set out those Decisions of the Joint Committee, and unilateral declarations by the UK and the EU in the Joint Committee.”.

There were four Decisions of the Joint Committee and five Unilateral Declarations made respectively by the UK and the EU in the Joint Committee at the Joint Committee’s meeting on 17th December 2020 on various aspects of the Northern Ireland Protocol, which were hopefully designed to minimise disruption to the flow of goods between Great Britain and Northern Ireland.

The  Decisions concerned such matters as the determination of goods not “at risk” of being exported to the EU from Northern Ireland after being imported into Northern Ireland from Great Britain and the Unilateral Declarations concerned specific issues relating to such matters as “meat products” and “official certification”.

What is noticeable is that the UK and the EU were able to take a fairly flexible approach towards recording and documenting the way in which agreement had been reached on these Northern Ireland Protocol implementation issues.

This is perhaps a sign that a pragmatic course of action by the two sides towards the implementation of the Withdrawal Agreement in general and the Northern Protocol in particular is possible.

Brexit and EU Legal Professional Privilege

On 8th September 2020, the Law Society of England and Wales published guidance on the application of the rules on EU legal professional privilege (EU LPP) to UK qualified lawyers after the end of the post-Brexit transition period, assuming that there is no deal on the mutual recognition of professional qualifications. This guidance has been attached to an email letter which the Law Society circulated to its members on 23rd December 2020.

According to the Law Society guidance, UK qualified lawyers who have not requalified as EEA lawyers will be treated as third country lawyers after the end of the post-Brexit transition period. As such, they will not be covered by EU LPP, in line with the decision of the Court of Justice of the European Union in the case of Akzo Nobel C-550/07, and will have to rely on whatever national legal privilege rights are available to them in the EU member state where they practise (if indeed they are allowed to practise there in accordance with local rules on the recognition of overseas professional qualifications). This is subject to specific provisions in the UK-EU Withdrawal Agreement for EU legal proceedings affecting the UK which have been initiated before the end of the post-Brexit transition period, where UK qualified lawyers will continue to be covered by EU LPP.

As explained in the Law Society guidance, the scope of EU LPP concerns communications relating to an EU Commission administrative or enforcement procedure and is subject to a “major limitation” in that, with exceptions, it does not generally cover the communications of in-house lawyers. Nevertheless, it is a privilege worth having and, unless there is a UK-EU deal to the contrary, it will no longer apply to UK qualified lawyers as such after the end of the post-Brexit transition period.

The Law Society offers some practical advice to UK qualified lawyers who find themselves caught out by this situation and in particular suggests that that such lawyers might team up with EU qualified lawyers and indeed be led by them on cases where it is desired that EU LPP should apply so that the relevant legal advice or steps are signed off or taken in the name of the EU lawyers concerned.

The Law Society strongly recommends that UK qualified lawyers review their modes of working urgently so as to be able to continue to take advantage of EU LPP where they can or wish to do so.

Brexit and the UK Advertising Industry

On 22nd December 2020, two of the UK advertising industries’ regulators, the Committee of Advertising Practice Ltd (CAP) and the Broadcast Committee of Advertising Practice Ltd (BCAP), issued a joint statement on the application of the CAP and BCAP Codes to the UK advertising industry following the post-Brexit transition period. The full title of the CAP Code is the UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing and the full title of the BCAP Code is the UK Code of Broadcast Advertising and both Codes are administered through the UK Advertising Standards Authority (ASA).

As the joint statement makes clear, the CAP and BCAP Codes include many rules which seek to reflect significant pieces of EU law or UK law that has been made to implement EU law; for example, on misleading advertising, food and medicines. The statement goes on to say that, deal or no deal:-

“In summary, CAP and BCAP advise advertisers that all EU-derived legislation that is in force at the end of the transition period will remain in force after this point unless it is subsequently repealed. CAP and BCAP will continue to consider any changes that might be necessary to the Codes as they receive further information from government, and will make any appropriate changes as soon as they are in a position to do so.”

The joint statement makes specific reference to the Protocol on Ireland/ Northern Ireland and confirms that CAP and BCAP are monitoring legislation and government guidance to ensure that any differences in regulation between Northern Ireland and the rest of the UK are reflected appropriately in the Codes.

The CAP and BCAP Codes are not legally binding as such but incorporate many legal principles and are treated as if they had the force of law by the UK advertising industry.

The UK and the EU have emphasised in their negotiations for a new post-Brexit transition period relationship that they each intend to maintain high standards of business conduct and the joint statement from CAP and BCAP suggests that this will continue to be the case, so far as the UK advertising industry is concerned.

Brexit and UK Public Procurement

Public procurement procedures in the UK are likely to be affected by the ending of the post-Brexit transition period on 31st December 2020, deal or no deal.

One of the reasons for this is that the UK Government has made it quite clear that it wishes to consider localising those procedures to UK needs and requirements and, in this context, on 15th December 2020 the UK Government published for consultation a Green Paper entitled “Transforming public procurement” containing proposals, according to the accompanying press release, “to speed up and simplify our procurement processes, place value for money at their heart, and unleash opportunities for small businesses, charities and social enterprises to innovate in public service delivery”.

The Green Paper envisages (amongst other things) a new transparency regime for public procurement, a consolidation and simplification of existing public procurement rules into a revised set of regulations and the creation of new Civil Procedure Rules and practice directions for hearing procurement challenges.

It seems that the UK Government is seeking to use the UK’s exit from the EU Single Market as an opportunity to make possibly significant changes to UK public procurement procedures and practices.

Brexit and the Future Partnership Agreements between the UK and the EU from a UK perspective

On 24th December 2020, the UK and the EU announced that, subject to their constitutional approval procedures, they had reached agreement – after nearly 11 months of sometimes fraught negotiations – on the terms of their future economic and security relationship following the end of post-Brexit transition period on 31st December 2020.

The UK Government press announcement of the deal, supported by a 34-page Summary Explainer document, summarises the UK approach to the deal succinctly and can be quoted in full:-

“The UK and the EU have agreed a Trade and Co-operation Agreement, an Agreement on Nuclear Co-operation and an Agreement on Security Procedures for Exchanging and Protecting Classified Information. These Agreements are designed to honour the instruction of the British people – expressed in the referendum of 2016 and the general election last year – to take back control of our laws, borders, money, trade and fisheries. It changes the basis of our relationship with our European neighbours from EU law to free trade and friendly co-operation.”

At the time of writing this blog, the text of what may be termed these future partnership agreements had not yet been published but the Summary Explainer issued by the UK Government seems to set out the intent of these agreements quite clearly and, based on the text of that documents, a certain amount of information and inferences may be drawn, which are described below..

The most wide-ranging of the three Agreements is the Trade and Co-operation Agreement (TCA), which Paragraph 10 of the Summary Explainer states is structured into 7 Parts:-

>>> Part 1 – the common and institutional provisions of the TCA;

>>> Part 2 – the trade and other economic aspects of the UK-EU relationship, such as aviation, energy, road transport, and social security;

>>> Part 3  –  co-operation on law enforcement and criminal justice;

>>> Part 4 –  “thematic” issues, notably health collaboration;

>>> Part 5  – participation in  EU Programmes, principally scientific collaboration through Horizon;

>>> Part 6  –  dispute settlement ; and

>>>  Part 7 – final provisions (perhaps the most notable of which is described in Paragraph 181 of the Summary Explainer, namely, the right for either side to terminate the TCA on 12 months’ notice).

As the Summary Explainer is essentially a political document, it is not slow to list in its Overview the perceived advantages of the TCA from the UK standpoint, including “100% tariff liberalisation”, “provisions to support trade in services”, “UK sovereignty over our fishing waters”, “streamlined co-operation on law enforcement”, “no role for the European Court of Justice and no requirements for the UK to continue following EU law”, “high labour environment and climate standards without giving the EU any say over our rules”, “our own modern subsidy system” [replacing the EU State Aid regime in Great Britain], “arrangements for airlines and hauliers”, “a social security agreement”, “collaboration on scientific research” and “ (very limited) scope for cross-suspension [of different parts of the TCA] following disputes”.

The other two Agreements mentioned in the Summary Explainer are dealt with much more briefly – a Nuclear Co-operation Agreement between the UK and the European Atomic Energy Community (Euratom), which “gives a legal underpinning to civil nuclear co-operation”, and an Agreement on Security Procedures for Exchanging and Protecting Classified Information, between the UK and EU, whose title speaks for itself and which “will supplement the Trade and Co-operation Agreement and facilitate the voluntary exchange of classified information” between the UK and EU and “govern how such information is shared and protected” on the basis that “the UK and EU will protect the classified information of the other to the same standards as they would their own information”.

There will no doubt be much analysis and comment on the detailed texts of the three Agreements – particularly the Trade and Co-operation Agreement – when those texts are published but what points come to mind so far? How much form-filling and other “red tape” will there still be as a result of the UK leaving the Customs Union and Single Market? The Summary Explainer Overview talks about “100% tariff liberalisation “ – what about non-tariff barriers? How many will there be? How much will trade in services (including financial services) be affected by Brexit and the ending of the transition period?

It seems that, not unsurprisingly, the devil will be in the detail and that those affected by the detail will need to master it or engage somebody who can!

Brexit and the draft Trade and Co-operation Agreement from an EU perspective

On 24th December 2020, the EU Commission published on its official website (www.ec.europa.eu) its press release on the agreement in principle reached by the UK and EU on the terms of their new post-Brexit transition period relationship. The press release was accompanied by a suite of explanatory documents but not at that stage by the text of the draft Trade and Co-operation Agreement itself, which is said to run to at least 1000 pages. The press release was entitled “EU-UK Trade and Co-operation Agreement: protecting European interests, ensuring fair competition, and continued co-operation in areas of mutual interest”, which gives a clue as to where the EU’s negotiating priorities lay in trying to ensure a “level playing field” for open and fair competition, as envisaged by the Political Declaration of October 2019.

The press release reports that that the draft Trade and Co-operation Agreement (TCA) consists of three main pillars – a Free Trade Agreement setting up a “new economic and social partnership with the United Kingdom“; a “new partnership for our citizens’ security”; and “a horizontal agreement on Governance”, establishing a Joint Partnership Council (which “will make sure the [Trade and Co-operation] Agreement is properly applied and interpreted, and in which all arising issues will be discussed”), and also setting up binding enforcement and dispute settlement mechanisms that “will ensure that rights of businesses, consumers and individuals are respected”.

Amongst the suite of documents is a very helpful two–page Overview which lists in two side-by-side columns headed respectively “Consequences of the UK’s choice to leave the EU, Single Market and Customs Union”  and “Benefits of the EU-UK Trade and Co-operation Agreement” the perceived (principally adverse) consequences of the UK’s departure from the EU and the perceived ameliorations to be effected by the proposed TCA. The Overview then analyses these matters under the side-headings “Trade in Goods”, “Trade in Services, Digital and Procurement”, “Energy & Climate”, “Mobility”, “Aviation”, Road Transport”, “Fisheries”, Security & Thematic Cooperation” and “Union Programmes”.

Another one of the suite of documents is a checklist comparing the outcomes in the draft TCA to the benefits of being an EU member state and arguably seeking to demonstrate (unsurprisingly) that, as good as the draft TCA is from a UK standpoint, it intentionally falls short of offering the UK all the benefits of EU membership. “The UK is not to be allowed to have its cake and eat it!” seems to be the message – the checklist lists 25 specific advantages of EU membership (ranging across “Free Movement of People”, “Trade in Goods”, “Trade in Services”, “Air Transport”, “Road Transport” , “Energy”, and “EU Programmes”) against which the UK will only continue to have 2 of these specific advantages outright under the draft TCA (namely, “visa- free travel (90 days in a 180 period)” and “zero tariffs or quotas”) as well a further 8 of these specific advantages on a conditional basis as set out in the draft TCA.

The EU press release outlines how the EU position has been secured by the draft TCA every bit as much as the UK seeks to demonstrate the advantages to the UK of the draft TCA in the UK Government’s  Summary Explainer document issued on the same day as the EU press release. Maybe this shows that the package of measures contained in the draft TCA  is indeed “fair and balanced” (as stated by EU President, Ursula von der Leyen, in her public pronouncement accompanying the press release), incorporating the core objectives of both parties.

As further analysis of the draft TCA continues over the coming period, it will be interesting to see whether perceptions in the UK and the EU of the outcomes in the draft TCA are altered or confirmed.

Brexit and Future Participation in EU Scientific and Education Co-operation Programmes

It is reported that the proposed Trade and Co-operation Agreement (TCA) between the UK and the EU will create or at least preserve the opportunity for the UK to participate in the future (and subject to making appropriate financial contributions) in important EU scientific and education co-operation programmes which are open to third–country participation.

The EU Commission Overview of the TCA published on 24th December 2020 confirms that under the terms of the deal the UK will participate in 5 EU scientific programmes open to third-country participation (subject to the UK making its financial contribution) namely:

>>>  Horizon Europe  (research and innovation);

>>>  Euratom Research and Training programme;

>>>  ITER (fusion test facility);

>>>  Copernicus (Earth monitoring system); and

>>> Access to EU satellite surveillance & tracking (SST) services.

The same Overview, however, intimates that, apart from access to EU programmes to which third-country participation is permitted, the UK will be “excluded from sensitive, high-security projects or contracts”.

On educational programmes, The Times of 26th December 2020 reports that the UK and the EU did discuss the UK’s continued participation in the EU-wide Erasmus university exchange programme but that the UK decided to opt out of it in respect of Great Britain on costs grounds. Instead, according to The Times report, the UK will create a new “Turing” scheme allowing UK students to apply to study at universities worldwide. At the time of this blog, the details of the “Turing” scheme are as yet unknown but a report in the online version of The Guardian of 24th December 2020 suggests that the new “Turing” scheme is not expected to fund students coming to the UK, as Erasmus does, which may deprive British universities of a source of income. The position is  further complicated because it is expected that Northern Ireland students will continue to be allowed to participate in the EU’s  Erasmus scheme, though whether they will be allowed to participate in the new UK “Turing” scheme is as yet unclear.

Loss of UK  participation in EU–based scientific and educational co-operation programmes may not be the first topic on most people’s minds when thinking of the consequences of Brexit but could have serious consequences for the UK and its place in the world’s scientific and educational communities, unless it is replaced by adequate new UK programmes.

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