Legal & Tax: Critical Update
For a variety of good reasons, the main focus of this Report is on Brexit. From a relocation industry
viewpoint, Brexit will create serious challenges for some and opportunities for others. A wider
perspective, which not everyone may agree with, was provided earlier this month by the International Monetary Fund: "Brexit may be the start of a growing revolt against
globalisation and technological advance in the developed world, threatening to depress living standards. Weak growth is unleashing negative economic and political forces that are fuelling protectionism in Europe and the United States as well as Britain." In trying to make sense of what Brexit is likely to mean for our industry, I am joined in this Report by my colleague, Stuart McWilliams, an immigration lawyer. Away from Brexit, the legal world continues to turn and we also highlight some recent developments in data privacy which affect relocation firms and draw your attention to the dangers of getting too chatty with your competitors!
A Hard Brexit's A-Gonna Fall (with apologies to Bob Dylan)
Gradually, we are moving on from mere speculation about what Brexit means to some clearer indications on how the UK Government plans to move forward. Then again "it takes two to tango" and the UK's view of a post-Brexit relationship is unlikely to be shared by Brussels. Nobody is predicting anything other than long and protracted negotiations.
So what do we now know? The UK Government recently announced that it will start the formal EU withdrawal process (called "Article 50") by March 2017. This process is due to be completed within two years, meaning that the UK's exit from the EU should take place by the summer of 2019.
We also know that the UK is placing a higher priority on control of immigration than continuing membership of the EU Single Market. The types of arrangement which the EU has agreed with Norway and Switzerland, which involve free movement of people, are off the agenda as far as the UK is concerned. Instead, it is believed that the UK Government will seek to negotiate a unique form of tariff-free access to the Single Market, which is not linked to "free movement". Importantly, the UK will also attempt to maintain the "passporting" rights (i.e. EU-wide access for financial institutions) which are so important to the many global banks and insurance companies which have chosen to establish their European HQs in London.
Unless the UK can pull off a negotiating triumph, it seems likely that we will see a significant exodus of financial sector jobs out of London. If the UK does lose its EU passporting rights, it is estimated that London could lose between 60,000 and 100,000 finance posts. Currently, it looks like Frankfurt is best placed to attract these jobs, but it will face strong competition from Amsterdam, Dublin and Paris.
Away from London and the banking sector, there is also a risk that manufacturing jobs in the UK will be lost to other EU countries. For example, some Japanese car manufacturers have indicated that UK locations will become less attractive if the UK no longer has tariff-free access to the Single Market.
Perhaps the most clear-cut examples of where jobs will be shifting from the UK to the EU are the EU agencies which are currently located in the UK. For example,the EU Medicines Agency is based in London and employs 900 people. Sweden is a leading contender to attract the agency, but currently faces competition from Denmark, Germany, Ireland, Italy and Spain. It is clear that the real prize is not just 900 skilled jobs, but also the likelihood that several pharmaceutical companies will follow the agency from the UK to its new EU location.
So, in terms of post-Brexit relocation activity, several EU countries are already jostling for position in the race to attract jobs from the UK. Clearly this will be good news for relocation companies in several EU countries. It is also good news for immigration firms, which leads on neatly to my colleague Stuart ……..!
The Future of EU-UK Immigration
One of the most profound implications of Brexit is likely to be seen in the area of UK - EU immigration, and at this stage there is a distinct lack of clarity in respect of what the future holds, but we can make an educated guess.
Currently EU citizens, and their family members, can move to the UK without restriction and without job offers, while UK nationals hold similar rights in other EU countries. Intra EU assignments are low cost, at least in terms of immigration fees, and offer minimal immigration compliance risks. This is almost certain to end once the UK leaves the EU, as the UK Government has promised to "take back control" of migration and dramatically reduce net migration to the UK. This is likely to mean the UK will not agree to the Norway model, whereby it could remain a member of the single market in exchange for respecting free movement of workers.
Much of the Brexit campaign was based around the possible introduction of an Australian-style, Points Based System for immigration. This had the potential to be particularly problematic for the relocation industry, as different prospects for success and potentially different rules would have applied to different clients, as the system would have varied from sector to sector and from region to region. Fortunately this approach appears to have been ruled out, which is not a massive surprise as the UK Home Office has progressively moved away from a Points Based System since May 2010, which was when, now Prime Minister, Theresa May was given responsibility for immigration law.
At the current time, our best guess is that the UK will aim for a middle ground. EU nationals will no longer have complete freedom of movement but some form of work permit system will apply for skilled individuals and workers in key sectors. This is likely to require some form of reciprocal arrangements for UK nationals travelling elsewhere in the UK. This system is unlikely to be as low cost, or as risk free, as the current system but will hopefully not reach the administrative levels and costs of the Tier 2 visa system which exists for non-EU nationals moving to the UK.
The situation of EU nationals living in the UK, and UK nationals living elsewhere in the EU, is also uncertain and will be a subject for discussion in the Brexit negotiations. However, the latest reports suggest that the UK is preparing for a large number of EU nationals currently in the UK to remain here following withdrawal from the EU, and again reciprocal arrangements are likely to exist.
On a practical level, relocation companies can be working with their clients to identify "at risk" assignees. These will be any assignees who do not have residence documentation and are instead relying on their national passports or identity cards only. In the event of an amnesty programme those with residence documentation are likely to face less administrative burdens. Long term assignees, who have been on assignment for more than 5 years, may have acquired a right of permanent residence and can apply for confirmation of this. Those without a right of permanent residence will be able to apply for registration certificates to confirm their status as international workers.
One area which will not be impacted by the changes is travel between European countries for non-EU nationals. This will, in most cases, continue to be governed by the Schengen agreement which the UK has already opted out of and there are no indications that it is likely to join following the Brexit vote.
Once the Article 50 process is engaged, there will need to be significant discussions regarding the future of EU-UK immigration and relocation companies will need to monitor these closely to ensure they are in a position to respond to a changing landscape.
Changes to non-EU - UK Immigration
Following the Brexit vote, the UK Government has re-committed to reducing net migration from over 300,000 a year to under 100,000 and this means there are likely to be large scale changes to the non EU immigration rules, some of which will have a significant impact on global mobility programmes.
The first of these changes, due to come into force in November 2016, is the extension of the Immigration Health Surcharge (£200 per person per year) to Intra Company Transfers. This will substantially increase the cost of international assignments, but
these costs will be minimal compared with cost increases in 2017. The UK Government intends to introduce a Skills Charge, up to £1000 per assignee, to all international assignments from April 2017 and this has the potential to have significant implications for clients' mobility budgets. These changes will present significant hurdles to relocation companies, as client companies may seek to make savings elsewhere. However, in turn, this will present real opportunities for relocation providers who can continue to offer high levels of service and value for money when dealing with assignments into the UK.
Sharing Personal Data of Transferees
The EU-US Privacy Shield, the new legal framework allowing personal data to be transferred from the European Economic Area to the United States, went live on 1st August. This has real significance for the European relocation industry, given the fact that personal data relating to transferees and their families is often gathered by "service providers" in Europe and then transferred to a US-headquartered RMC, with the data then being held (or accessed) in the US.
Most RMCs have registered under the Privacy Shield, incentivised by an initial 30th September deadline, which allowed early applicants a nine months period of grace to ensure that their external supply chains are also fully compliant with the Privacy Shield rules. Applications submitted after 30th September must contain confirmation that the applicant's supply chain is already fully compliant at the date of application.
The practical implications for relocation firms in Europe are twofold. Firstly, when you transfer personal data to an RMC (or other US-based business) which is Privacy Shield certified, you can be comfortable in the knowledge that the RMC has entered legally binding obligations to manage the data in accordance with EU legal requirements. By contrast, any transfer to a non-certified US business partner should only be made where you are satisfied that there is some other legal basis for the transfer, such as the use of EU Standard Contract Clauses. In essence, the Privacy Shield simplifies the legal requirements for transfers of personal data to the US, whereas special care is required when handling data transfers to non-certified organisations.
Secondly, RMCs are now undertaking revisions of their Service Provider Agreements to incorporate the new data protection obligations arising from the Privacy Shield. These changes are of particular significance to relocation firms in countries outside the EEA, as they impose EU-standard compliance obligations in relation to all personal data which has originated in the EU.
A wider point arises from the Privacy Shield and the new, EU-wide General Data Protection Regulation (GDPR). Will RMCs (and other multi-national organisations) try to standardise their global data processing by, effectively, adopting GDPR as their worldwide data protection standard? Right now, with the EU setting the pace on data protection, this will be on the agenda of many global businesses.
Be Careful When Talking To Your Competitors!
It seems that every few years, a very old issue rears its head again in the international moving business. A few guys get together and share information on what their companies are planning to do on pricing and maybe have a chat about upcoming tenders. The latest example occurred in Spain and has resulted in the Spanish competition authority fining 15 moving companies for price fixing. The highest fine levied in this case was 1.5 million Euros, but previous fines levied in the EU have sometimes exceeded 5 million Euros.
The clear message is: do not talk to your competitors about pricing or any other terms of business. If you discover that one of your employees has been communicating unwisely with competitors, you should consider self-reporting your concerns to your national competition authority. This is likely to reduce any fine imposed by the authority and may help to minimise the damage to your business reputation.
Above all, we recommend that you provide your employees with clear guidance on what is acceptable and what is unacceptable in the course of conversations with competitors. Ignorance of the law is never a defence!
The Legal & Tax Report is produced for The EuRApean by Gordon Kerr and Stuart McWilliams, the Employee Mobility Unit at UK law firm, Morton Fraser LLP.