BREXIT: LIGHTING THE WAY - SPRING 2018 UPDATE - PWC
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Brexit:
Lighting the way
Spring 2018 Update
Spring 2018
Issue 3
Introduction
With just under one year until the UK formally leaves the
European Union, the realities of Brexit continue to come
into focus.
The EU and UK transitional deal agreement reached on
19 March should see the status quo maintained until
December 2020, but the deal is not fully guaranteed.
It still depends on both parties agreeing a Withdrawal
Agreement in the next 12 months.
Whatever form it takes, Brexit will impact your business
and we strongly advise you to prepare now. Disruption and
change is coming and preparation now is key.
Following the release of the EU’s draft guidelines on the
Framework for the Future Relationship (FFR), EU Council
President Donald Tusk noted:
“This [FFR] will be the first Free Trade
Agreement in history that
loosens economic ties, instead of strengthening
them. Our agreement will not make trade
between the UK and the EU frictionless or
smoother. It will make it more complicated
and costly than today, for all of us. This is the
essence of Brexit.”
In this document, we present our latest insights into
the developments to date, highlight the upcoming key
milestones and outline our advice to businesses to make
sure they are ready for Brexit.
Contact us to discuss the impact
and opportunities Brexit presents
for your business and how best to
prepare for both.
Feargal O’Rourke
Managing Partner, PwC Ireland
2 | Brexit Update 2018 Brexit Update 2018 | 3
Recent developments Our view
• On 28 February, the European and Customs Union, she also stated that as before Brexit between Last year, we published our view that a It found that more than 1 in 10 EU
Commision published the full text of one of the foundations of the future these dates hard Brexit was the most likely result of companies have moved some of their
the draft Withdrawal Agreement. partnership should include “reciprocal • The UK will be able to the negotiations, having assessed all of employees out of the UK since the
binding obligations” between the EU negotiate, sign and ratify its the possible scenarios. One year later, our referendum and that 22 percent of British
This converts December’s Joint Report and the UK to ensure fair and open own trade deals during the opinion remains largely unchanged. businesses are having problems securing
and the European Commission’s competition. transition period, without contracts with EU suppliers after the
Transition Proposal to draft treaty text. the need for EU approval The possibility of a hard Brexit, albeit March 2019 leaving date.
This was the first time the UK provided the deals do not an orderly one, is enough that we advise
The Withdrawal Agreement consists of acknowledged that it will need EU come into force until after the businesses to prudently plan on the Other governments, organisations and
six parts: help across a range of sectors when it transition assumption of this outcome. business groups have also activated hard
• Introductory provisions leaves the Union. The speech could be • To enable the UK to remain Brexit plans or issued advice to prepare
• Citizens’ rights interpreted as sending subtle messages, party to existing EU trade While we welcome agreement on the for this possibility:
• Other separation issues such as goods with its references to key economic deals during the transition, transition arrangement, businesses
placed on the market before the sectors, data protection and passporting. the EU will ask partner cannot rely on this hypothetical
withdrawal date It could also have been an attempt countries to treat the UK as if “breathing space” that the duration of a • The Dutch Government
• The financial settlement to educate the British public on how it is still bound by existing EU transition period would allow. The Dutch government has activated
• Transitional arrangement complicated Brexit will be. agreements its hard Brexit plan for customs.
• Institutional provisions including The transition period will last just 21
a protocol on Ireland / Northern On 7 March, the European Council • 19 March also saw the UK months, a relatively short period of time. • European Central Bank
Ireland. published draft negotiating guidelines and EU reaching agreement on ECB President Mario Draghi has warned
for a Framework for the Future a number of important elements Of concern is the fact that if there is a of the possibility of a hard Brexit. In
The protocol on the border between Relationship (FFR). Because of the UK’s of the Withdrawal Agreement, breakdown in the on-going Withdrawal early February, he said: “The bottom
Ireland and Northern Ireland contains position, these were in the form of a free notably the financial settlement Agreement discussions this year, a line is … either the negotiation is well
managed and there won’t be substantial
the so-called ‘back-stop option’ to prevent trade agreement (FTA). and citizens rights. transition deal would also fall away,
risk, or it is not and then the risks will
a hard border being put in place. The leading to significant disruption. be there. We’ve got to be prepared.”
protocol also establishes a common From a business perspective, the draft • During the 22-23 March
regulatory area to ensure the free negotiating guidelines contain an European Council meeting, Four of the most significant issues still • The Dublin Port Authority
movement of goods on the island. This important “evolution clause”: if the negotiations received outstanding include: The DPA has commenced preparations
ensures that Northern Ireland remains in UK’s position on current sticking points additional positive momentum. for a hard Brexit. It has stated it is
“full alignment” with the EU’s Customs were to evolve positively, the EU would 1. Agreement on the future framework assuming the UK will leave both the EU
Union and, in essence, the relevant Single be willing to reconsider its FFR offer in EU leaders endorsed the for trade Customs Union and the Single Market.
Market rules. favour of a more ambitious trade deal. transition period framework 2. The dispute resolution mechanism Their preparations are being finalised
and adopted the FFR guidelines, needed for future trade relations. in 2018 in case a transition deal cannot
Since its publication, Member States have • On 19 March the UK and EU agreed paving the way for the formal 3. Resolving the question of the Irish be agreed.
provided feedback and guidance on the the terms of the transition period. opening of future trade and border
text, modifying it slightly. relationship negotiations. 4. Governance of the Withdrawal
The key aspects of the agreement are: Agreement
The UK’s lack of willingness to
• In early March, the UK’s Prime consider a Customs Union, and
Minister Theresa May delivered a • The transition period will last from 29 The UK’s Chartered Institute of continuing talk of “cherry-picking”
speech on the UK’s future economic March 2019 to 31 December 2020 Procurement & Supply issued a report in which arrangements it does or does
partnership with the EU. • Single Market and Customs Union rules March which highlighted the steps some not want to retain, means that an
will continue to apply during the period companies have already taken to manage orderly hard Brexit remains too
While the PM reiterated the Government’s • EU and UK citizens will continue to their Brexit risks. likely for businesses to ignore.
commitment to leaving the Single Market have the same rights and guarantees
4 | Brexit Update 2018 Brexit Update 2018 | 5
Possible future scenarios What is the Canadian model?
What future trade agreement will the UK have after Brexit?
The Canadian free trade agreement, CETA, was put in place in
September 2017. It took five years to negotiate and two years to ratify.
With the UK continuing to insist on its red lines (the aspects of Under the rules of the Canadian model, Canada does not have to pay
agreement it is not prepared to consider), the EU has said that the only into the EU budget, agree to the four freedoms of the EU, or abide by
remaining possible deal is a free trade agreement (FTA). European Court of Justice rulings.
CETA removes the majority of customs duties on European exports
President of the European Council, Donald Tusk, has stated that the to Canada and Canadian exports to the EU. By 2025, tariffs on
UK’s “pick and mix” approach in the negotiations means that a free trade industrial products will also be removed.
agreement, similar to those currently in place with Canada and South
Tariffs on agricultural products are also removed on many products
Korea, is the only possible option for the UK.
under CETA.
The graphic below sets out the EU’s view on the most likely post-Brexit EU companies are permitted to bid for many public contracts in Canada,
agreement based on current UK red lines. It illustrates which trade but CETA does not guarantee Canadian firms an EU financial services
agreements are out of scope, on the basis of the UK’s current position. “passport”.
A deal of this nature covers most areas of trade and investment, but
doesn’t ensure passporting for financial services. The three main areas to
consider are:
• Customs
• Tariffs
• Services
Model
Norway Iceland Liecht Switz Ukraine Turkey S Korea Canada
UK ‘red lines’
No European Court
of Justice jurisdiction
X X X X
No free
movement X X X X
No substantial
financial contribution X X X X
Regulatory
autonomy X X X X X
Independent
trade policy X
Source - European Commission
6 | Brexit Update 2018 Brexit Update 2018 | 7
Key moments
2019
2018 June Mar
28-29 30
Jan The EU and British Jan
At June’s EU summit, 01
EU leaders will review parliaments must
progress to date. If ratify the withdrawal If current plans hold,
If all goes to plan,
enough progress has treaty before Brexit. the UK will begin its
Oct a new EU-UK free
been transition period. During
18-19 trade deal would
made, drafting of a this time the UK will
Mar The quarterly EU take effect, along
“political declaration” effectively maintain all
22-23 summit is Barnier’s with special treaty
can begin. This its benefits, in terms of
EU leaders target date to agree a relationships in
“political declaration” access to EU markets
endorse a withdrawal treaty. He areas such as
will provide the and be bound by all EU
transition period hopes to finalise any security, defense
framework for formal rules and budgets. The
framework and legal loose ends for and research.
trade negotiations UK’s voting rights in
approve a set of the UK’s departure, Europe will be removed.
instructions to with the UK, once it such as the rights of Mar
becomes a third It will be consulted on
Europe’s chief citizens, mutual 29 some issues and can
negotiator, Michel country. Reaching financial At midnight in Brussels,
agreement on the 11pm in London, the negotiate its own trade
Barnier, to secure commitments and deals.
a trade pact with Irish “backstop” will how to keep the Irish UK’s membership of the
the UK. be critical to agreeing border fully open. European Union will
the Withdrawal The Treaty will also cease, two years to the
Agreement. contain the Transition day after it formally filed
notice to quit. If there is 2020 2021
deal, and be
accompanied by a no ratified withdrawal
separate “political treaty, there will be legal
Formal commencement chaos unless all sides
declaration” outlining The EU’s proposed
of trade/future agree to a special
the broad terms of a transition period ends,
relationship extension, which could
free trade accord and with the UK free to
negotiations. prove complicated.
other relationships to implement its own trade
Continuation of
follow after that. deals with other
negotiations on
unresolved Withdrawal countries, free of all
Agreement issues; obligations to the
principally the Ireland European Union and,
Protocol and hopefully with an FTA
Withdrawal Agreement with the EU also ready to
governance. come into force.
Dec
Apr 31
8 | Brexit Update 2018 Brexit Update 2018 | 9
Key questions and answers What are other companies finding
for business most challenging?
Have we more time to plan now? Will there be a border between
Northern Ireland and Ireland?
Hopefully. However while the EU has
indicated its willingness to facilitate We believe that there will be some form
a transition period until 31 December of border. Part of the exit agreement was I know I have a We’re working We are based in We will move
2020, this has not been formally agreed. that there would be no hard border. It’s number of key hard to manage the UK and have some trading
It will only be agreed on ratification of still unclear how and where the border Brexit issues. the impacts of a large client activity into an
the final Withdrawal Agreement in late will take effect. Customs controls are How should Brexit which we base in the EU- Irish regulated
2018. Businesses must consider the issues uncertain: possibilities include taking the I go about can control, but 27, and we’re MiFID entity to
that will arise over the coming year. border off-line, or moving the border to structuring we’re heavily concerned we address EU-27
In terms of preparation for mitigating the sea. a business reliant on what cannot provide market access
circumstances solutions, such as customs review to fully our suppliers are our investment concerns arising
warehousing can take up to six months. Is there certainty on anything? understand the doing too. I’m management from Brexit.
It can take between six and nine months impact on my not confident services to How will the
for Authorised Economic Operator The UK will leave the EU’s Single business? they are taking them. remuneration
accreditation to be approved. Market, at the earliest in March 2019. this seriously. of these key
The disruption of leaving will be real individuals need
and both the UK and EU have publicly to be structured?
What should we prioritise in this
accepted that reality. Businesses should
time?
also accept this reality, examine what the
disruptions and opportunities will be, and
Business decisions and capital investment
act accordingly.
decisions need to be taken regardless.
You need to make these based on the fact
PwC advice PwC advice PwC advice PwC advice
that the UK will be outside of the Customs
Union and Single Market and work back
from there. Regardless of the sector your Develop a business-wide Engaging early with Businesses based in the Businesses will need to be
business operates in, your considerations Brexit readiness programme suppliers is the only UK who currently provide aware of the regulatory
should include: that fully assesses its full practical approach if you investment management considerations that
impact on different business are looking to manage services to clients in the are in effect when they
• Regulations functions. Put governance potential risks. Identify EU should look to obtain are structuring their
• People in place appropriate to key suppliers and seek to authorisation by the Central remuneration policy for staff
• Supply chain and operations the size and complexity of understand their product Bank of Ireland as an EU-27 members who have been
• R&D your business. All business flows, particularly if a regulated investment firm impacted by changes that
• Commercial and Trade areas need to be included high percentage of your in Ireland. This will enable Brexit has meant for their
• Investment and Funding in the programme. Key purchases are UK produced them to continue doing operating model.
?
business areas that need to or shipped through the business with clients within
Isn’t the transition period just the be within scope are Supply UK. Arrange to meet all the European Union after
UK staying in the EU for another Chain, Procurement, Sales suppliers to assess the Brexit.
two years? & Marketing, Human impact of potential tariffs
Resources and Finance. and nontariff costs on your
In broad terms, yes. The UK will continue Make Brexit a key priority cost of goods.
to abide by all EU rules and laws and for these areas and ensure
any additional rules that come into force they are accountable to
during this time, but not be involved in senior leadership.
making decisions.
PwC has a dedicated Brexit team assisting clients across multiply industries and sectors. Contact us
today to understand the implications of Brexit on your business and how to best prepare for this.
10 | Brexit Update 2018 Brexit Update 2018 | 11
Less than one year to go – No risk actions
We continue to urge our clients to plan for a Hard Brexit scenario
If a transitional period is agreed and distributing non-EU goods, such as to incorporate AEO into their business as against any risk of delay when goods
that goes beyond March 2019, Chinese or US manufactured goods, from a contingency measure for dealing with enter or leave the country. Customs reliefs
planning is still prudent to assess a UK warehouse will have significant the potential of border delays. available in certain instances to reduce
the extent of the disruption that customs compliance requirements. As customs duty payable should be explored
the UK leaving the Single Market well as increased compliance costs, there as part of any Brexit planning.
and Customs Union will have. is a risk of ‘double duty’ where duty
5 Assess ‘Brexit Readiness’ of
mitigation measures are not put in place. appropriate contracts
We consider the actions outlined below For Irish businesses, there will be a strong Many businesses may find that their 8 Monitor your workforce
as “no risk” actions for many companies, reliance on UK partners to facilitate such current contracts lack provisions to deal Immigration is the one area
particularly those engaged in cross- measures. Without that cooperation, Irish with Brexit and the changing relationship where a clear picture is emerging. The
border trade, to undertake now. businesses face further increased costs. between the UK and the EU. For the UK has outlined details of its settlement
purposes of customs and trade, it will be scheme and temporary residence scheme.
Day One readiness – Customs critical to assess contracts to determine Registration for UK citizens will be a
1 and trade registrations and 3 Invest in customs expertise if the buyer or seller is responsible for big change for employers. Systems and
authorisations Irish companies will need to think fulfilling relevant customs obligations, immigration policies will need to be
Assess which customs and trade more strategically about customs and including the lodgement of customs updated. Firms should already have
registrations, authorisations and reliefs trade. On import and export, there will be declaration and the payment of customs completed an impact assessment on
are required to be put in place to enable a requirement to file customs declarations duties. what this could mean for their business.
customs clearance, duty payments, for all goods imported and/or exported Communicating with employees is
meeting relevant regulatory licensing to or from the UK. Access to customs critical.
requirements and securing available and trade knowledge will be essential for Ensure adequate cash flow
duty reliefs. In addition, engagement of a day to day operational activities. This is 6 for VAT and additional
customs agent (broker) will be required in addition to building a robust customs inventory Intellectual property
in order to facilitate the filing of customs function to support products crossing Import VAT is a duty of customs. A result 9 Intellectual property protection,
declarations. international borders. of Brexit is that it now poses a cashflow including patents, trademarks,
challenge for companies trading cross- registered designs and copyright could
border with the UK. Import VAT will be all change after Brexit. The British
Map and validate supply 4 Obtain Authorised Economic charged at the border when importing government says European patents
2
chain models Operator (AEO) status goods, in both Ireland and the UK. Cash will still apply in the UK but the UK is
In order to understand the impact of There has been commentary about flow problems will be compounded for “exploring options” in other IP areas, such
Brexit, companies need to map and “trusted trader” status, and what this companies that need to hold additional as trademarks and designs, because in
validate their supply chain models in could mean for importers/exporters post inventory as insurance against potential many cases these will lapse after Brexit.
order to understand their direct and Brexit. Authorised Economic Operator border delays.
indirect exposure. For example, a (AEO) status is a well-established
challenge for Irish business is the use of “trusted trader” customs programme, in
the UK as a land bridge, with products place in the EU since 2008. After Brexit, 7 Develop a contingency plan
moving through the UK en-route to and AEO could provide for faster customs There is no guarantee that border
from Ireland. Sourcing products through clearance by providing priority access to procedures will operate smoothly
the UK from countries that the EU companies who have been pre-assessed. immediately after Brexit. Companies
currently has an FTA with, or, storing Companies in certain sectors should look need a contingency plan to mitigate
12 | Brexit Update 2018 Brexit Update 2018 | 13
Managing Partner Brexit Task Force Leader
Feargal O’Rourke David McGee
feargal.orourke@ie.pwc.com david.a.mcgee@ie.pwc.com
Industry specialists
Get in touch with any member of our Brexit team or your usual PwC contact to find out more about
how we can help you and your business prepare for Brexit.
Financial Services Aviation Finance
Damian Neylin Yvonne Thompson
damian.neylin@ie.pwc.com yvonne.thompson@ie.pwc.com
Technology, Communications & Media Pharmaceuticals & Life Sciences
Damian Byrne Jean Delaney
damian.byrne@ie.pwc.com jean.delaney@ie.pwc.com
Retail, Consumer and Agri-food Real Estate
John Dillon Joanne Kelly
john.p.dillon@ie.pwc.com joanne.p.kelly@ie.pwc.com
Public Sector, Local Government & Healthcare FinTech
Michael McDaid Ronan Fitzpatrick
michael.j.mcdaid@ie.pwc.com ronan.fitzpatrick@ie.pwc.com
Energy & Utilities Small & Mid-size Businesses
Ger O’Mahoney John Dunne
ger.omahoney@ie.pwc.com john.a.dunne@ie.pwc.com
Customs & Trade Customs & Trade
John O’Loughlin Jennifer Hawkins
john.p.oloughlin@ie.pwc.com jennifer.k.hawkins@ie.pwc.com
Retail, Consumer and Agri-food Asset & Wealth Management
Owen McFeely Karen Donnelly
owen.mcfeely@ie.pwc.com karen.donnelly@ie.pwc.com
14 | Brexit Update 2018 Brexit Update 2017 | 15
www.pwc.ie/brexit At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2018 PwC. All rights reserved. ‘PwC’ refers to the PwC network and/or one of more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. 06295_0318
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