Understand Your Rights. Solve Your Legal Problems
In light of the recent Panama Papers scandal, governments and financial institutions worldwide have upped anti-corruption on their priority lists. The European Union subsequently announced that it would be moving to clamp down on tax minimization and avoidance, and has put together an action plan towards combatting a lack of transparency from corporations and their financial/tax declarations. The UK also hosted a global anti-corruption summit last month, with the aim of tackling similar matters.
But a question comes to mind: should companies be more worried about their moral standing in the public eye or about preventing risks and avoiding financial penalties?
To shed some light on the matter, Lawyer Monthly has spoken to Toby Ryland, Partner at HW Fisher, an SME focused chartered accountancy firm in the UK. Toby specialises in corporate tax advisory work including mergers and acquisitions, due diligence, tax efficient structuring and consulting advice such as on R&D tax reliefs and the Enterprise Investment Scheme.
He is also an expert at advising overseas companies that are keen to invest in the UK and has assisted numerous businesses to successfully establish themselves in the UK. Toby is an experienced corporate tax partner and has worked with a wide range of businesses in many different sectors including technology, property and retail.
In terms of transparency, where would you say progress currently stands on this issue globally?
A growing number of countries is steadily upping the ante on tax disclosure, forcing companies to be more transparent about how and where they make their money. For instance at the start of 2016, the UK and the Netherlands introduced laws requiring larger companies operating across multiple jurisdictions to give full details of how the business is structured.
So in the case of Britain, this means that such companies must file tax returns to HMRC showing not just their UK revenue, but which also reveal the relationship between all sister companies and any subsidiaries across the international group. The thinking behind such moves is to prevent multinationals moving profits made in one country to another in order to avoid tax – a practice known as Base Erosion and Profit Shifting (BEPS).
However the ability of such measures to force transparency on sophisticated multinationals is limited, as so far only a few countries have signed up to them. Within the EU there is far from a common approach. Other European countries are at varying stages in the process of introducing similar measures. Austria and Hungary have not even begun, and the US has given no indication that it intends to do so.
Such measures can only be truly effective if all countries take them jointly, as anything less than a common front will allow companies to shift capital to ‘weak link’ jurisdictions where there is less transparency and thus avoid tax. International hopes rest with the efforts, led by the G20, to build a cross-border consensus on tackling BEPS – but despite several statements of intent, implementation is still some way off.
In reality this is a hugely difficult issue on which to find international agreement. Not only do tax laws vary hugely from country to country, so too do attitudes to both tax and government. But without coordinated action, the chances of BEPS being eradicated are limited.
Do you think the heart of this issue should focus on morality or just the pragmatic management of risk? Why?
It’s quite an emotive one really. I think the real danger is that focusing on morality is difficult because everybody has a different perspective, and so what’s a moral amount of tax for one company to pay will be viewed entirely differently from another company, and so we end up with just a huge amount of uncertainty as to what is the acceptable level of tax to pay. So, I think the better way is for a system that is clear and unambiguous, so that everybody knows where they stand, and what side of the line is acceptable and what is not.
There is always going to be a grey area somewhere, and I think the moral tone that’s been set over recent months or years, gives people far more of a steer. But differences remain when everybody, each as a taxpayer, has their own view. I’ve worked in the past with clients who just say ‘I’ll pay whatever tax I think is fair, 30 – 40%? That sounds fine to me’, but others are inclined to say ‘actually, why should I pay so much tax? The government is just going to waste it; it’ll be lost in inefficiency. I can create more wealth, more jobs, and better conditions for all of my employees if I pay less tax, because I’ll have more to re-invest in my business’. So I don’t think there will ever be a one-fits-all answer.
In your opinion, could reputational risk prove more effective than the threat of legal sanctions at persuading companies to fully disclose their tax affairs?
For some it may be, for others it will not. Businesses that are in the public eye rely on good PR and will not want to be splashed across the tabloids if they’re going to be seen to be doing anything that could be construed as tax avoidance. They are all already very aware of that, and we can see it with the voluntary payments made by companies like Starbucks, they will do anything to boost the public’s positive perception of them. So for them, it probably has changed their outlook and the way they operate, but then there are a significant number of other businesses who are either not really reliant on the public – such as pure business to business trades - who don’t have much in the way of a public image; they are far less likely to be influenced.
Also, we end up with a bit of a catch-22 for a lot of these businesses: do they not have a legal duty to maximize return to their shareholders? Could they voluntarily opt to pay more tax and not breach that duty? It puts them in a very difficult situation. In some cases they would, when you look at certain types of companies like the Coop and John Lewis, they would probably want to be seen paying what’s due and beyond, and not cutting any corners. But in the case of others, and particularly those that may not be UK centric, it may be that the UK’s a relatively small section of their business, so they wouldn’t really care as much about taking the flack that comes with avoidance schemes or tax effective structures, and are likely to be far less influenced.
As to the EU’s curb scheme on tax disclosure, do you think the panama papers, in conjunction with Steve Wozniak’s recent comments on corporations having to pay more tax than they do, plus several other references to tax disparity worldwide, might push for a business tax reform? How do you think this might span across jurisdictions and what kind of time-scale might we see for a conclusion?
I think that’s certainly happening, and there’s been far more cooperation of late, particularly between the more developed countries’ tax authorities to try and actually come up with some sensible rules that would work universally in the modern world. But, whether we’ll get to a good outcome or not I do wonder, because there’s been a lot of commentary on all this tax avoiding - it’s terrible, it takes money away from developing nations, etc. – which is undoubtedly true, but when it comes to the point of the UK, US & Germany saying ‘well, we’ll forego some of the tax we could otherwise collect, to make sure businesses pay more taxes in countries in the developing world’; and that is a lot more difficult to see happening. It sounds great in theory, but when it comes down to it, everybody’s competing for the same pot of money.
We would be looking at quite a few years before we get a conclusion. It’s something that would probably start to develop over the next five years or so, but will continually be revised, and I think it will be many years into the future before we have anything that could vaguely be considered coherent. I think that’s largely because, you are going to have all different countries competing for the same tax money, and nations like the US are not likely to voluntarily pass up on money owed to them. Secondly, a lot of countries have very different outlooks on how the tax system should operate, who should collect the tax, and the UK seems to be moving further and further away from taxing corporates and businesses, and moving more towards taxing the individuals. So we’re seeing higher rates of income tax and VAT, but lower rates of corporate tax, mainly because of businesses being so mobile. Meanwhile you have nations like France that are very much towards taxing the employer and business, and will then spread that wealth throughout the population.
Do you think a sort of amnesty on tax disclosure could make a difference? (This is in reference to the US’ ‘Voluntary Disclosure Program’ which had very positive and impacting results) (Ref. companies voluntarily paying more tax than they absolutely have to – e.g. Vodafone’s decision to pay millions in corporation tax following the sale of its stake in the US carrier Verizon).
In the EU, it’s possible but I do not think this would help matters. I’m not really sure whether it would be the right way to go as taxes should be paid in accordance with tax laws that are clear and unambiguously set out how much should be paid. So if governments are looking to gain more income from corporate tax, they should amend laws in order to get it. As soon as you’re leaving companies to decide whether they should offer to pay more tax, or enable voluntary disclosures, it might go down well with the public, but again we’re back at the catch-22: what happens when the institutional shareholders demand a particular return or dividend, they’re not going to be happy when the Director turns around and says ‘well we can’t do that because we voluntarily paid more tax this year’.
Sophisticated tax accountants have made the most of loopholes for years, but could that finally change as the threat of reputational damage proves better at concentrating minds than the law?
This is the one area where I think reputational risk has actually worked very well. If you look at ten years ago, there were tax avoidance schemes that were ridiculously artificial, being offered by dozens of firms, including the really big players; that’s now almost completely eradicated, certainly in the UK. There are still a few boutique firms that, together with their clients, have a very different attitude to risk, and will still do some of these schemes. But on the whole, the mainstream firms have walked away from them now. Therefore I believe that this key shift has already happened amongst the professionals, so whether we need anything further, to legally stop firms offering these tax minimization arrangements, I remain to be convinced.
In terms of business sustainability, is there concern for paying tax towards those nations that the tax paying business then sources materials, assets or employees from?
Anything that will directly affect the business, people tend to be quite focused on and are probably happier to pay tax in that territory. Although this is a bit of a selfish way of looking at it, rather than for the greater good, it’s more along the lines of ‘do I benefit?’
However, there is more consciousness nowadays about sustainability and corporate social responsibility. But we often see that as soon as we hit a recession or a downturn in business, that’s one of the first things to go out of the window. So it’s great that companies, when they have the funds, will look to improving sustainability of resources and will push towards responsible decisions environmentally and in other matters, but I don’t think it’s likely one of the highest on their list of priorities.
Is there anything else you would like to add?
Is this whole process really going to get us anywhere? The reason for asking is that, once we may start out with an idea that we need to harmonize everything, stop profits being moved around, and everyone should pay their fair share of tax, we are going to come back to all of the world’s nations competing over that money. It’s always going to end up with legal loopholes that businesses can exploit, and we could end up going around in circles, resulting in as much planning and avoidance of tax payments as we have seen in the recent past, but just achieved in a different way.
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The UK government is soon to introduce the Investigatory Powers Bill with the intention of cracking down on legal transparency, but while the Human Rights Committee deems this a “significant step forward,” it states that there is a need for more safeguards.
UK MPs and their peers have stated that the collection of personal data on a large scale is not “inherently incompatible” with privacy laws. Civil liberties groups are concerned over privacy infringement surrounding the bill. The bill is in its last stages of approval after a thorough year of amendments due to the opposition of three parliamentary committees. Labour has recently backed the Tory government's proposed law and the bill is now sat before the House of Lords.
The joint committee heading up the bill says the powers it allows are not “inherently incompatible with the right to respect for private life,” and are “capable of being justified if they have a sufficiently clear legal basis, are shown to be necessary, and are proportionate.” It did however also state that further improvements are called for “to enhance further the compatibility of the legal framework with human rights.”
Some MPs state the bill’s clauses are “too broadly drafted” and should be narrowed to prevent larger groups of the public falling under its radar.
So the questions that arise are: Where is the moral and legal line drawn? How can the clauses be less vague? How can we make sure the right targets are under the scope?
This month Lawyer Monthly spoke to several sources in the legal, political and technology fields on the matter; here’s what they had to say.
Yuval Ben-Moshe, Senior Forensics Technical Director at Cellebrite, a leading provider of mobile forensic technology:
“There’s been much debate over Home Secretary Theresa May’s Investigatory Powers Bill. The legitimate concerns over the general public’s privacy point to the importance of taking measures, with technology, to promote safeguards and ensure compliance while also proceeding forward to deal efficiently with emerging threats.
“Digital forensic analysis, especially on mobile devices and Cloud stored data, now plays such a key part in criminal investigations as all of us now have a digital footprint reflecting our character, whereabouts and future plans.
“In specific cases that warrant action, if intelligence agencies are granted access to an individual or group’s mobile and online activity, the data should be handled sensitively and by fully trained and qualified professionals. It’s important for agencies to have the correct technology in place to ensure forensic investigations are as full, accurate and focused as possible on extracting and analysing only the data relevant to bring those responsible for criminal activity to justice, as well as proving innocence.”
Jonathan Parker-Bray, CEO and Founder of Pryvate (a new network agnostic encryption app that allows all business and personal communications to remain private and free from hacking):
“We would agree strongly that there does need to be an updating and an expansion of legislation to account for the digital age. However, this should not override every UK citizen’s hard-fought right to privacy nor hamper the essential security requirements for businesses to thrive. We believe that law-abiding individuals and corporations have a fundamental right to privacy, and everyone should have the right to choose whether or not to keep their communications private. The Government must seriously consider the potential damage that the Investigatory Powers Bill could do to the UK economy when debating the bill. It’s important that they do not react to a tragedy with an unconsidered response, that will have little or no effect on national security, but will have an impact on both people’s and business’ right to privacy.
This is especially the case in the legal world, where professionals have both ethical and legal responsibilities to protect their clients’ data. It’s therefore increasingly imperative that lawyers and law firms should be free to take all reasonable steps to ensure their clients are safe from cybercrime and surveillance, using whatever encryption tools are at their disposal to achieve such ends. Using services that encrypt email, texts, instant messages, file transfers, storage etc. to ensure they can’t be intercepted or traced, should be one of the first actions taken by a legal company’s IT team to ensure that the government cannot abuse its powers.”
Willy Leichter, Vice President of Marketing at CipherCloud, a specialist cloud security firm:
"The UK IPB is unclear and problematic in a number of areas. Similar to other laws that seek to control new technology, the drafters seem to have an incomplete understanding of technical realities. For example:
- The IPB allows collection of data on websites visited, but not specific web pages. This is an arbitrary and often meaningless distinction – many URLs point to specific web pages, and home pages often reveal extensive content. Imagine law enforcement learning that you’ve read the ‘Communist Manifesto’ but saying ‘we’re not snooping on which pages you’ve read’.
- The bill seems to have reasonable judicial oversight, but then allows sweepings powers to intercept bulk data. This will inevitably lead to collecting massive amounts of data on citizens who are in no way connected to investigations.
- The law requires CSPs to “assist” law enforcement. This is a very slippery slope – with the Apple encryption case, the FBI sought to have Apple right new software to break into own systems. Essentially, this can require CSP technicians to be forced into compulsory hacking.
- Most troubling, the bill creates a new criminal offence for CSPs or employees who reveal that data has been requested. Imposing gag orders on providers who are forced to assist can lead to massive, unchecked overreach, and a general loss of public trust in the integrity of the cloud.
- The bill appears to be extremely naïve around the topic of encryption. It requires CSPs to decrypt information that they have encrypted. This is completely meaningless as individuals, businesses, and terrorists alike can all use their own encryption, which is impenetrable by the CSP.
The bill also stipulates that foreign CSPs will not be required to decrypt data – simply recognition of what would be impossible in a connected world.
Overall the IPB is a strange combination of very targeted and seemingly limited steps, along with sweeping data collection powers, broad unchecked legal authority and gag orders that will stifle oversight and legitimate objections from service providers."
Paul Oliver, Solicitor at Stokoe Partnership Solicitors, a criminal litigation practice that specialises in defending very serious crime:
"The IPB has rightly been heavily scrutinised, however, it is important to remember that individual freedom and liberty is a key aspect of liberal democracies, and the starting point should therefore be the principle of protection from intrusion by the state, with specific exceptions being made only where it can be justified.
It has been previously shown that warrants are a very important mechanism for this, requiring state agencies to obtain judicial authority for specific, and limited, powers of intrusion. The importance of this was noted by the Parliamentary Intelligence and Security Committee (PISC), which commented as follows: “privacy protections should form the backbone of the draft legislation, around which the exceptional powers are then built… privacy considerations must form an integral part of the legislation, not merely an add-on.”
It has been suggested that a ‘Class Warrant’ for Bulk Personal Data, rather than specifically targeted warrants, would make for a broad brush approach. In this case, particularly, this would have harmful effects, catching many more people in the net whose privacy will be invaded without just cause. Naturally – by making it more difficult to pin down and scrutinise the justifications for such wide ranging action – this increases fears surrounding the bill.
The PISC has stated that “class authorisations should be kept to an absolute minimum and subject to greater safeguards”, and have gone further, saying that Class Bulk Personal Dataset warrants should be removed entirely from the legislation. These would increase the safeguards for privacy in the bill, putting the onus on security services to ensure their case to place any targets under surveillance would only be approved after undergoing judicial scrutiny, rather than simply bundling through whole groups of people in Class Warrants."
Nicola Fulford, Head of Data Protection and Privacy at Kemp Little, a boutique technology-focused law firm based in London:
“Current privacy law permits interference with an individual’s right to privacy by public authorities only where it is: (1) in accordance with the law; and (2) it is necessary in a democratic society to achieve a legitimate aim (such as in the interests of national security). To withstand legal challenge, any interference with the right to privacy needs to be proportionate to what is being achieved by the interference. Legally, there is a balance to be struck between the right to privacy on the one hand, and national security on the other hand. This balancing act involves moral and legal dimensions, which are inherently intertwined.
Clarity and proportionality in the legislation is key in order to avoid challenge of the IPB on human rights grounds. The definition of ‘internet connection records’ in the Bill needs to be clarified, as there is currently no consistent understanding of the term and the requirement for businesses to keep records of information not currently captured could have significant operational and cost implications on those affected.
The IPB does not require a warrant to access ‘internet connection records’ but it does require a warrant to access ‘content’. This division is technically difficult to implement in practice and would require internet companies to filter through data in order to separate what can and cannot be released without a warrant.
The bulk surveillance powers in the Bill mean that it won't always be the personal information of individuals posing a risk to national security that is accessed by the authorities. Access to irrelevant personal information can be avoided by targeting investigatory powers where there is a suspicion of a serious crime being committed. This will also help to ensure that the use of surveillance is proportionate to achieving a legitimate aim. Privacy intrusion can be further minimised by making sure that the data is only accessible by organisations on a need to know basis. HMRC currently has the same investigatory powers as intelligence services under the Bill, which does not seem necessary and proportionate.
Finally, proper scrutiny is vital in making sure that the right targets are under the scope of any bulk surveillance. There are safeguards included in the Bill in the form of Judicial Commissioners who need to approve warrants. From a privacy perspective, these safeguards could be further strengthened to ensure that only the right targets are under the scope of any surveillance.
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Business leaders dealing with the Brexit fallout have been told not to panic over the possible impact on intellectual property, trademarks and copyright laws. Leading national law firm Freeths is advising clients that nothing will change immediately.
Freeths partner Simon Barker, head of intellectual property based at the firm’s Birmingham office, said: “While the formal process of leaving the EU will take at least two years, we appreciate that there will be an appetite for early information about how businesses are going to be affected.
“We are providing clients with the best information that we can offer at this stage about how the UK’s departure from the EU may impact the intellectual property rights of businesses.
“Intellectual property law has been, generally, well-harmonised in the European Union, providing systems for registration of pan-EU trade marks and designs, as well as aligning Member States’ laws governing unregistered rights such as copyright.”
He added: “Nothing will change immediately and it is unlikely that the UK government will be quick to implement any laws which result in a lesser degree of IP protection for businesses in the UK. Businesses should nevertheless consider any formal consultations and lobbying opportunities that arise.”
Simon said that, upon exit, UK courts will no longer be bound by decisions from the Court of Justice in the European Union as to how laws should be interpreted. UK courts will, however, remain bound by decisions of higher UK courts, even those which resulted from CJEU guidance (absent a contrary view given upon appeal to the Supreme Court in the UK). So without the opportunity for UK first instance courts to refer novel or disputed legal points to the CJEU, we may see more IP appeals reaching the Supreme Court than before.
“Over time, it is anticipated that IP laws in the UK will diverge from EU laws to some degree, as a result of developing case law and legislative reforms,” he added.
Trade marks and registered designs which are registered at the United Kingdom Intellectual Property Office (UKIPO) will not be affected. Pan-EU trade marks and designs which are registered at the European Union Intellectual Property Office (EUIPO) will likely be the subject of transitional provisions providing for either:
Whether either the EUIPO and/or the UKIPO will levy official fees to cover the administrative burden on both registers is not known.
Common law rights in passing off (that is, a business’s “unregistered” rights in its name, branding, get-up or trade dress) are derived wholly from UK common law and will be unaffected.
These unregistered rights are unlikely to be directly affected in the short to medium term. While current national legislation reflects certain EU instruments, the laws governing the subsistence, duration and enforcement of these rights should be expected to diverge from the laws of EU Member States over time.
Note that UK businesses will no longer be able to avail themselves of the provisions governing Community unregistered designs. However national legislation providing for (longer-lasting) unregistered UK design rights will be unaffected.
The present European Patent System does not provide a unitary European patent registration. Rather it provides for a single application process resulting in a patent that, once granted, can then be separated registered as national patents around Europe. This system is not connected to the EU and will not be affected.
A unitary European patent system intended to provide a single pan-EU registration has however been in development for some time, with the UK government passing preparatory provisions as recently as March this year. The UK’s departure from the EU means that it will not automatically be entitled to participate in that system, although some commentators are of the view that a bilateral agreement between the UK and the EU may enable UK businesses to participate.
(Source: Freeths LLP)
More than half of UK legal firms feel that the skilled talent pool within the sector has shrunk over the last year, according to Clayton Legal.
A study of over 2000 firms by the specialist legal recruitment consultancy found that 52% had found it more difficult to source skilled professionals over the past 12 months. Organisations reported severe shortages in conveyancing, property and clinical negligence, in particular, as well as a lack of relevantly skilled newly qualified solicitors.
Managing Director of Clayton Legal, Lynn Sedgwick comments: “It’s not entirely surprising to see a fall in the number of skilled legal professionals in the market, we’ve seen skills shortages grow significantly worse over the past few years and the percentage of firms that report a lack of available talent highlights this. There are a number of reasons behind the fall, property experts, for example, left the sector in droves during the slump in 2008 and talent pipelines are still taking some time to recover. In addition, in conveyancing many solicitors tend to work on a locum basis, which has left firms that are looking to recruit permanent experts struggling.”
“More than anything, this suggests that legal firms need to take a long term approach to identifying and building talent pools and pipelines as it’s not an easy time to recruit legal specialists, as our data shows. This is one of the reasons why we’re partnering with training organisations, as it allows us to identify these pipelines early on as well as any areas that could potentially be impacted by shortages. However, with the growth of the paralegal role providing an alternative path into the sector, it’s likely that we should get a greater stream of skilled professionals entering the profession over the coming years, which could help to halt the problem in its tracks.”
(Source: Clayton Legal)
Whilst the British public has spoken and the decision to leave the EU has been made, the path is far from straight forward. The referendum is merely the start of a two year process of negotiations and decisions. The UK has now to decide if it will join the European Economic Area (EEA), thereby remaining as associate members of the European Union or cut all ties with Europe – as far as it is possible to do so in a globalised world economy.
If the UK decides to remain part of the European Economic Area (EEA), the huge progress that has been made to date in improving the UK environment could be lost in the absence of external pressure and auditing that membership of the union has brought. A total withdrawal is likely to bring a much wider erosion of environmental policy, which could be the intention the current Government and one which risks significant economic damage to the UK. It is possible however, for members of the EEA to follow EU environmental policies.
Both Norway and Iceland, as non-EU members of the EEA, follow EU climate policy closely and participate in large parts without exerting significant influence on its development and direction. Norway participates in the EU ETS via its parallel trading system. Initially, it was only able to do so through a one-way voluntary acceptance of EU ETS allowances to meet its own trading system’s obligations, but joined fully in 2008, once the European Commission had accepted its proposals for a cap and allocation of allowances. Its participation in the ETS continues to allow it the flexibility of a wider carbon market; but it has no influence on the carbon price applied or the level of ambition set for the ETS.
Iceland has less need of an emissions trading mechanism, since its domestic energy supply is 100% renewable; but has been part of the EU’s wider emissions target since the EU and Iceland jointly ratified the Kyoto Protocol. Its contribution to the Paris Agreement is aligned with the EU’s, although it had no voice in European Council discussions on the targets, and (like Norway with the ETS), its only choice in implementation is either to accept EU rules, or to comply separately without the flexibility allowed to member states. This would be the position of the UK if it now decides to become an EEA member outside the EU. Also, with regard to trading with its European counterparts, the UK will be subject to a wide range of EU laws it will now have little influence over their content.
European environmental policies provide business opportunities to UK firms to become market leaders in the development of new technologies. The Confederation of British Industry (CBI) suggested that green business accounted for 8% of GDP, a third of UK growth in 2011-2012 and could add a further £20 billion to the UK economy. The EU is our largest trading partner offering access to a larger marketplace and the opportunity to trade with other member states under favourable terms and conditions. Non-EU Members of the EEA enjoy preferential access to the Single European Market but do not participate in Justice and Home Affairs, Common Foreign and Security Policy, the Common Agricultural Policy, and the Common Fisheries Policy. In order to gain preferential access to the EU market they do have to abide by the acquis communautaire – the rules and regulations governing the operation of the single market, including many environmental rules.
A total withdrawal with no EEA membership would lead to significant risk both rising energy costs and security of supply as the UK has a heavy dependence on European interconnectors. Predictions are that by 2030 the UK will be importing circa 75% of its gas. Events in the past two years have shown how important it is to keep suppliers onside with what has happened in Eastern Europe with Russia using its gas supplies through Gazprom as a tool of foreign policy.
Before we joined the EU, Britain was seen as the dirty man of Europe In the period that the UK has been in the EU, the economy and environment has improved, albeit not entirely due to EU membership. For many years, Europe led the world in renewable energy investment but China has overtaken this. EU nations promoted clean energy at vastly inflated costs through imposed renewable energy targets, tariffs and subsidies. When budgets reached breaking point in 2011, European renewable energy investment slumped by more than half and has yet to recover.
Some environmental policies are as a result of UK initiatives, Driven by concerns on carbon price, the UK unilaterally enacted the carbon floor price which is contributing to the closure of coal-fired power stations. The UK has also singly decided to phase out coal-fired power entirely by 2025. In coming decades, the planet faces an unprecedented challenge in the form of climate change and the only way to address it is through technological innovation and reduction of energy use.
What is most worrying now the decision to Exit the EU has been made is that, in recent years, the UK government has shown a clear lack of commitment to driving down energy use, preferring to focus its attention on security of supply at any cost as demonstrated by the capacity market auctions. The government is now effectively free to amend or repeal the acts adopted to give effect to the EU laws that has driven the implementation of energy efficiency measures. Without the levels of environmental protection afforded by EU membership, the weakening of UK environmental policy appears inevitable under the current Government. The longer term commitment is more positive, in that, on 22nd April 2016 the UK signed the COP21 agreement, committing to 1.55% reduction in carbon emissions. The UK is expected to deliver on this whether it is an EU member state or not.
Another particular concern that will be in the forefront on campaigners’ minds today is that fracking will become widespread despite the number of environmental and safety concerns. The majority of the rules that regulate the use of fracking are derived from European directives and are intended to make sure that fracking and other activities do not contaminate water, pollute the air or use unsafe chemicals. The government has suggested in the past that fracking legislation is an unnecessary burden. The Government’s clear and unmoving support for fracking is a firm indicator that this will be the case.
Whilst EU membership has its drawbacks, from an environmental perspective, it offered the UK protection from the Government’s varying its commitment to the environment and climate change based on other needs including that of the Treasury. That said, the exit is a long process – the UK is required to give two years notice and during that time there will be much negotiation.
Despite the environmental concerns arising from the referendum result, there is widespread acknowledgement from a large number of global organisations that the implementation of energy saving measures and a reduction in energy use is essential to future success. From a corporate responsibility perspective, many companies insist that measures that improve the efficiency of buildings from which they operate go beyond the legislative requirements. Whilst the UK population who supported the decision to leave the EU today may have given the current Government the tools to overturn some of the progress made through EU environmental policies, the benefits of energy efficiency are recognised beyond the legislative requirement and this will continue to drive change regardless of any backward step that the impending exit from the EU will bring.
Written by Melanie Kendall-Reid, Compliance Director at Carbon2018.
(Source: Carbon2018)
The electorate’s momentous decision to leave the EU plunges the UK into unchartered and choppy waters. The vote will cause a period of uncertainty regarding the overarching EU legislation relating to European travel and the extent to which the relevant laws will continue to apply once the UK has withdrawn.
Over the years, European legislation has implemented various directives to ensure a high level of consumer protection for UK nationals travelling to EU member states.
For more than 20 years, British holidaymakers have relied upon the Package Travel Directive to claim damages against their own UK tour operator in circumstances where the operator (or its suppliers) breaches the rules. This gives the consumer a high level of protection against a range of potential problems – including cancellations, mis-selling, price changes, insolvency and accidents - which occur due to a supplier’s failure to comply with local standards.
The Directive has enabled British holidaymakers to pursue meritorious claims against operators in the UK Courts and to recover English levels of damages and associated costs, which often far outweigh awards that would be made in other member states.
In similar fashion, EC Regulation 44/2001 and the EU Court of Justice decision of FBTO v Odenbreit allow British holidaymakers to initiate claims against the EU insurers of negligent third parties in the English jurisdiction, provided the country of origin permits a direct right of action against an insurer.
This process is again very advantageous since it means that claims can be initiated in the English courts against the foreign insurer. Any such claims are subject to English procedural law and - in contrast to many other EU countries - the successful claimant is entitled to recover legal costs from the defendant.
The five EU Motor Insurance Directives were established to help protect the victims of road traffic accidents within the EU. These abolished green card checks at borders and also obliged all EU based insurers to nominate a handling agent in each of the member states. This allows the injured claimant’s legal representative to liaise directly with, and serve proceedings against, a UK handling agent, thereby avoiding tortuous communications with the foreign insurer.
Another obvious benefit derived from our membership of the European Union is the entitlement to rely upon a European Health Insurance Card (EHIC) in order to receive free medical treatment while on holiday in the 28 EU member states. This right will be extinguished once the UK officially relinquishes its membership of the EU.
Accidents abroad often involve disputes associated with applicable law arising from the two EU Regulations that govern this area. The Rome I Regulation covers contractual obligations, while the Rome II Regulation deals with non-contractual obligations. Prior to the implementation of Rome I and Rome II, travel law practitioners relied upon the Private International Law (Miscellaneous Provisions) Act 1995 and Contracts (Applicable Law) Act 1990 when determining disputes associated to applicable law.
It will be necessary for UK legislators to decide the extent to which the provisions of Rome I and Rome II will continue to apply once the negotiations between the EU and the UK are concluded.
Currently, claims against tour operators are based on breach of contract, albeit pursuant to the Package Travel Regulations rather than Rome I. Tour operator contracts with consumers incorporate English law (and English jurisdiction) and English holidaymakers will therefore still be able to pursue claims against them in the UK, and to recover English damages and costs. It remains to be seen, however, whether the changes in legislation will afford the same level of protection as the Regulations.
Although it is difficult to predict what the UK exit from the EU will mean for domestic law and legislation, we do at least know the approximate timescales for this to happen. The onus is now on the UK to notify its intention to leave though it seems unlikely the UK Government will be in any particular hurry to do this.
Once the UK has triggered Article 50 of the Treaty on European Union, the UK and the EU “shall negotiate and conclude an agreement…setting any arrangements for its withdrawal” and “taking account of the framework for its future relationship with the union.”
The UK and the EU (specifically the European Council) have two years from the date of the notification to reach agreement and the treaty shall cease to apply at the end of that two year period, unless the European Council, in agreement with the UK, unanimously decides to extend it. There is a huge amount of work to be done and it may well be that the UK and the EU are forced to agree an extension - but this will only be possible if all EU member states agree.
Brexit will therefore have no immediate impact on the UK’s domestic law and negotiations could foreseeably run well beyond the two year negotiation period.
The extent of any domestic legislative changes will largely be decided by the terms of the withdrawal agreement and our future relationship with the EU. There therefore remains a high degree of uncertainty regarding the level of protection for British tourists post Brexit.
During the negotiating period, the Government will have the mammoth task of negotiating new trade deals, considering its stance on immigration and identifying which of the UK’s laws need redrafting and those which should be repealed. As EU regulations will cease to apply in the UK, these will all have to be replaced or re-enacted by equivalent laws.
Once the negotiations are finalised, there should be a much greater degree of clarity as we will then better understand how the new relationship between the UK and the EU is to work and, importantly, which rules and legislation will continue to apply and which will not.
Although it is too early to give any clear indications as to the likely changes, consumer groups will wish to safeguard the high level of protection previously afforded to British holidaymakers as a consequence of our membership of the EU.
Written by Mark Lee, Partner and Head of the Travel Law Team at Penningtons Manches LLP.
(Source: Penningtons Manches LLP)
"The surprising Brexit results, coming after recent polls indicated that a majority of UK citizens were in favour of remaining in the European Community, will now likely create several headwinds for US banks.
We now see a further decline in long-term US interest rates, a stronger US Dollar, and low probability that the Fed will raise short-term rates in the foreseeable future. This will further pressure net interest margins at banks, and lead to lower oil prices - with negative credit effects on bank's energy lending.
Banks have increasingly moved towards an asset-neutral position, as few are willing to risk being asset sensitive precisely because of days like today. They cannot justify an asset-sensitive balance sheet to regulators. Also, net interest margins move slowly, over time, and not in lockstep with US long term rates. We expect the next several days to be as turbulent as other major market shocks of the last 15 years: September 11, the Lehman bankruptcy in 2008, the 2011 US debt downgrade from AAA to AA+, and the 2015 China slowdown.
Once the dust settles, investors will have a clearer view as to the longer-term effects of Brexit. We expect the Fed to tread very carefully with interest rates, and to support the markets, possibly with additional QE programs. However, we do not subscribe to the most dire predictions we have heard about Brexit. The Brexit vote merely sets in motion a long and complicated process of extricating the UK from the European Union. We have no idea of how negotiations will proceed, and how much leverage the UK will have.
Separately, the Fed released the quantitative stress test results yesterday, and all 33 participating banks passed. This means they would hypothetically be able to maintain their capital ratios at a level of at least 4.5%, even after a hypothetical economic firestorm of 10% unemployment, negative interest rates, deflation, etc.
This year the largest banks did surprisingly well, following last year's results, in which they had a tough capital markets test. The regional banks did not fare as well this year, as they had a difficult test with negative interest rates. Next week will be the more interesting CCAR results, where banks will reveal whether or not the Fed approved their capital plans to buy back additional shares and raise their dividends."
Written by Erik Oja - S&P Global Market Intelligence
(Source: S&P Global)
The vote for Brexit is, we believe, likely to reinforce a recent loss of momentum in parts of the UK economy. We believe the result of the referendum will hit consumer and business confidence, at least in the short term. Business investment, already fragile, will be hurt, and so will credit growth. Capital outflows are to be envisaged; the UK’s current account balance will be hurt, as will government finances. As a consequence, our baseline scenario is for real UK GDP growth of the order of 1.3% this year and 0.9% in 2017, well below our expectation earlier this year that UK GDP would grow by 1.8% in 2016 and by 2.0% in 2017. In addition, a sharp drop in sterling can be expected to lead to a rise in imported inflation that will offset any weakness in domestic inflation, at least in the short term.
We now believe real growth in the euro area could be 1.5% this year instead of the 1.8% rate we had been forecasting. And we expect the euro area economy to expand by 1.3% rather than 1.7% in 2017. But given that the UK only accounts for 2% of the world economy (on the basis of purchasing power parity), we believe the Brexit vote will have only a slight impact globally. Our central scenario now is that world growth will be of the order of 3% this year and next, instead of 3.2%. Central banks will likely take coordinated action to avoid a liquidity crisis.
Given our analysis that financial markets had never fully priced in Brexit, and given the rebound seen in the days running up to the referendum, we believe that volatility will rise significantly despite central banks’ interventions and that risk assets will come under pressure in the days that come. We also believe that after the shock has passed, risk assets will stabilise while market participants tease out the form that Brexit takes. But this stabilisation could prove temporary and give way to renewed market pressures.
Our central forecast foresees a short-term drop of 12-15% in UK equities from their current levels. We also believe that the fall-out from Brexit will be felt in euro area equity markets, with the Euro Stoxx 50 sliding by 7-10% in the short term. By contrast, we believe US equities will remain relatively (but not totally) immune from the Brexit vote. We expect a number of ‘safe haven’ assets to be boosted by the UK referendum result in the short term, including the Swiss franc, the US dollar, Japanese yen, gold and core government bonds. Having risen close to GBP1:USD1.50 by referendum day from less than GBP1:USD1.39 at the end of February, we believe the shock caused by the Brexit vote will cause sterling to drop sharply again before stabilising in a range of GBP1:USD1.25—USD1.35. The Swiss franc will also come under renewed upward pressure, forcing the Swiss National Bank to intervene in an effort to stop the Swiss franc from rising beyond €1:CHF1.08.
We expect a steepening in the yield curve on UK gilts in the short term before action by the Bank of England (BOE) leads to curve flattening. Expectations that the BOE would gradually move to normalise policy will need to be put on hold. We also foresee a renewed decline in US Treasury yields, with 10-year US Treasury yields perhaps falling by 20-30 basis points from their current levels. We expect a slight fall in German Bund yields (perhaps by 10 basis points) to be accompanied by a rise in yields on peripheral euro area bonds before possible intervention by the European Central Bank steadies the fixed-income market. Similar trends are to be expected in European corporate bonds.
The political impact of the vote for Brexit will be significant, but the UK and Europe have time to negotiate the mechanics of the UK’s exit from the EU. Article 50 of the European Treaty establishes a two-year negotiating period. During this time, the UK parliament will have its say, with results that cannot yet be foretold. There could be a “hard” exit (with no preferential access for UK exports to the EU) or a “soft” one (with some preferential access in return for notable concessions, in line with Norway’s relationship to the EU). We believe the UK could lose around 4% of potential GDP growth in the next five years if we see a “soft” exit, but that the UK could fall into recession in the short term and lose a cumulative 8% of potential GDP growth over five years should there be a “hard” exit.
The result has led David Cameron to announce his resignation as British prime minister. More fundamentally, we believe the referendum result provides a second wind to populism (and the tenants of economic protectionism) throughout the western world. We believe this populism will remain centre-stage in European politics for some time, increasing uncertainty and making life uncomfortable for mainstream policy makers. The future of the European economic union is at risk.
(Source: Lansons)
In light of the recent news that the British public has voted Leave in the EU Referendum, in this article Shyam Dhir, a German National specialising in applications under EEA regulations with Duncan Lewis’s Business Immigration team, sets out the options that available to EU citizens currently in the UK.
The results for the EU Referendum are out and the people of Britain have voted by a narrow majority to leave the EU. With both sides of the campaign acknowledging this to be a ‘historic’ day for very different reasons, many EU citizens living and working in the UK will concerned about what the future now holds for them. We have already received a number of enquiries from EU Citizens who are worried about their legal status in the UK – and for good reason. However it is important to remember that EU Legislation is currently still in effect. Negotiations have probably already started between the UK and other member States to decide the future relationships between the UK and the EU.
There will be on-going negotiations regarding the free movement of goods, services, labour and capital. Under Article 50 of the Treaty, this process of leaving could take at least two years to realise, and so a formal decision, on matters such as free movement of labour will take some time to resolve.
So, what does this mean for EU Citizens currently living in the UK? In short as it stands, there are no immediate consequences for EU nationals and their rights to submit applications to the Home Office. The UK Visa & Immigration department have also yet to make any formal announcement on EU nationals and EEA applications.
The European Economic Act 2006 states that an EU citizen has a right to reside in the UK for an initial period of 3 months. After which, he must be a ‘qualified person’ to remain in the UK lawfully. These include workers, job seekers, students and those who are self-sufficient.
If an EU national has been residing in the UK and has been a ‘qualified person’ for the last 5 years, they would, in principle have Permanent Residence in the UK under the regulations.
An example would be a Polish national who has been residing in the UK for 5 or more years and was continuously working during that five year period. Certain family members of EU citizens with Permanent Residence would also be eligible to make an application under these rules with some exceptions.The whole process could take up to six months for a decision to be made. Given the result of the referendum, there will be a heavy volume of such applications being received by the Home Office in the next few weeks. If you believe that you qualify for permanent residence or require further advice on your position please contact us for information.
An EU national who is currently in the UK and is exercising their rights as a ‘qualified person’ can request a Registration Certificate to confirm their right of residence in the UK. Whilst the above is not a mandatory requirement for anyone currently in the UK exercising their Treaty Rights, it is certainly a useful document as proof of your residence in the UK. This document is usually valid for 5 years, after which, the said document can be used as supporting evidence for application for Permanent Residence as set out above.
Can I become British as an EU National? An EU National who has held a document certifying Permanent Residence (as set out above) for at least one year, can make an application to naturalise as a British Citizen.
Once you have obtained Permanent Residence, you would then be eligible to naturalise as a British Citizen. There are different rules to naturalise as a British Citizen for applicants who are under 18.
A family member would also be eligible to remain in the UK if:
We are happy to discuss all options with EU nationals taking into account their personal circumstances. To summarise all of the above, we would advise all EU Citizens to receive legal advice on their options as EU Citizens by speaking to one of our specialist lawyers who deal with such matters on a day-to-day basis. Whilst the implications of leaving the EU remain uncertain, it is important to remember the contribution of millions of European nationals to the UK currently working in diverse sectors from banking to the NHS.
What is certain is that a decision cannot be taken lightly on such a large volume of the UK’s workforce and their families. It is likely that transitional arrangements in the Immigration Rules will need to be made to ensure that all EU nationals currently exercising their right to free movement will be treated fairly. Until that time, our advice would be to all EU nationals and their families, is to consider regularising their status where possible.
(Source: Duncan Lewis)
Speaking before an audience of over 200 senior managers from across the financial services sector, experts from leading international law firm Simmons & Simmons and Henley Business School agreed that reform of the Data Protection Act 1998 is still on the cards following the UK’s historic vote to leave the EU, although they stopped short of predicting the DPA 1998 would be scrapped altogether.
Alexander Brown, partner at Simmons & Simmons and head of the firm’s TMT sector group commented: “While there was stiff opposition to many measures contained in the EU General Data Protection Regulation during the negotiations with the UK Government, it’s highly unlikely that the Data Protection Act 1998 will remain in place without some form of reform. In any event, it will be difficult to avoid the implications of the GDPR for many FS clients that conduct business across the EU and therefore will need to comply with it.”
"The really interesting question – as yet to be decided – is whether the European Commission will recognise the UK as an ‘adequate country’ for the purposes of cross-border personal data transfers or whether the UK could suffer the same fate as the US where transfers of data have been made more problematic through the scrapping of the US Safe Harbor” adds Brown.
According to the experts, the most likely outcome is that the EU will make a determination in favour of the UK as an ‘adequate country’ given its been at the forefront of providing legal protection for consumers with respect to personal data for over three decades. The UK was one of the first countries in the world to empower its Data Protection Authority to impose fines for personal data breaches.
There are also other significant business continuity challenges ahead for the financial services sector, warns Bryan Foss visiting lecturer at Henley Business School.
“Since the stock market blip in 2008, FS firms have seen record fines and profit impairments as a direct result of poor identification of operational risks. Lack of training and preparing for personal data breaches is a significant internal training issue that many companies are still failing to implement and this is now key to effective risk and governance management where the personal data of millions of customers across the EU is being processed,” Foss says.
A new DPO Programme for the FS sector has been launched by Henley Business School and a sneak preview is available here.
Although competition law is unlikely to change fundamentally as the UK negotiates its exit over the next two years, the future interpretation, amendment or replacement of UK competition law will add further uncertainty for the FS sector over the medium-long term.
(Source: Henley Business School)
