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Brexit – The Potential Legal Implications

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On Friday, 24 June 2016 the UK voted to leave the EU.  Since then, there have been significant and immediate economic, political and social implications following the referendum. The full legal implications will take longer to become completely clear.

The details of the process for the UK’s withdrawal are uncertain under EU law – Article 50(2) of the Treaty on European Union which governs the withdrawal has never been used before. The exit process will be a lengthy affair taking around 2 years.  The UK must negotiate the terms on which it will leave the EU and also of its future relationship with it. The UK Government anticipates the exit process could take at least 10 years.

The UK parliament will have to decide what EU laws to repeal and which to keep.

Brexit will have legal implications for Irish Companies who do business in or with the UK. Lavelle Solicitors will continue to monitor the exit process closely and will provide updates in forthcoming newsletters, where we will examine the developments accordingly and their implications for our clients.

Below is a brief overview of some of the areas in which we believe the main legal changes will occur.

Some of the main areas affected by Brexit include:

1. Tax
The British Chancellor of the Exchequer has already announced his intention to reduce tax rates. Following its departure from the EU, the UK would be free to create investment-friendly tax policies that may divert attention from Ireland as a centre for Foreign Direct Investment.

Also, Ireland’s export market would be seriously affected by the imposition of customs taxes and tariffs, which would impact on import-reliant Irish businesses.

2. Financial Services
The UK’s departure from the EU will result in a change to the financial services competitive landscape.

The rights of UK based financial services groups to be able to “passport” their services into the rest of the EU under the single market rules may be jeopardised. Currently, banks, insurers and investment companies authorised in a European Economic Area (“EEA”) country are entitled to carry out permitted activities in other EEA states by exercising the right of establishment via a branch or cross-border services, without further authorisation requirements.

The UK may also seize the opportunity to depart from EU legislation and case law and revise VAT legislation in accordance with its national interests and the interests of the City of London.

3. Contracts
It is unlikely that Brexit will be a frustrating event for many contracts. However, businesses would be best advised to review their commercial contracts to see if there are any clauses dependant on one of the parties being present in the EU.

4. Employment
Irish businesses with a UK presence and UK employees may be required to introduce new employment contracts to address new laws in relation to pay, working time, leave etc. Irish workers will no longer enjoy free movement to the UK (and vice-versa).

5. Exports
Around 14% of Irish goods and services are exported annually to the UK. As Irish trade is heavily reliant on the UK market and its free access to it. The export market and the economy would be greatly impacted by any newly imposed tariffs and border controls.

One immediate effect of Brexit was the sharp decline of Sterling.  The British pound dropped to its lowest level in 31 years in the aftermath of the Brexit leave announcement.

This fluctuation in currency makes our exports to the UK more expensive, although our imports will be cheaper.

6. Cross border insolvency
Brexit and a restriction on the free movement of labour may mean the days of Irish bankrupts taking advantage of the UK insolvency rules are numbered.  Although, it is likely that the new Irish bankruptcy regime may naturally end this practice as the term of bankruptcy is reduced from three years to one year.

7. Competition law
If EU competition law is no longer applicable in the UK, small Irish businesses with a UK operation may face tough market conditions.

8. Sale of Goods/Supply of Services
This is another area of law which is heavily regulated by the EU. New UK standards would affect Irish businesses importing goods or Irish consumers making online purchases.

9. Intellectual Property

It is possible the UK will introduce a new national rights protection system. Businesses will probably be required to re-register their IP to ensure protection.

10. Litigation
Irish people or businesses involved in UK litigation will no longer have the option of appealing to Europe nor will they be able to rely on EU legislation or case law.

11. State Aid
The UK government may be able to freely aid UK companies thus putting Irish companies operating in the UK at a disadvantage.

However, it will remain a member of the OECD, and is committed to following the OECD’s BEPS initiative

It is unlikely that Brexit will be a frustrating event for many contracts. However, businesses would be best advised to review their commercial contracts to see if there are any clauses dependant on one of the parties being present in the EU.

3. Employment
Irish businesses with a UK presence and UK employees may be required to introduce new employment contracts to address new laws in relation to pay, working time, leave etc. Irish workers will no longer enjoy free movement to the UK.

4. Cross border insolvency
Brexit may mean the days of Irish bankrupts taking advantage of the UK insolvency rules are numbered.

5. Competition law
If EU competition law is no longer applicable in the UK, small Irish businesses with a UK operation may face tough market conditions.

6. Sale of Goods/Supply of Services

This is another area of law which is heavily regulated by the EU. New UK standards would affect Irish businesses importing goods or Irish consumers making online purchases.

7. Intellectual Property
It is possible the UK will introduce a new national rights protection system. Businesses will probably be required to re-register their IP to ensure protection.

8. Litigation
Irish people or businesses involved in UK litigation will no longer have the option of appealing to Europe nor will they be able to rely on EU legislation or case law.

9. State Aid
The UK government may be able to freely aid UK companies thus putting Irish companies operating in the UK at a disadvantage. However, the UK will remain a member of the OECD, and is committed to following the OECD’s BEPS initiatives.

For more information on the legal implications of Brexit email Michael Lavelle, Managing Partner at [email protected].