How your business should react to Brexit

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" Australian businesses may need to review their trading and contractual arrangements to seek to minimise such additional costs and requirements."
Frank Castiglia, Partner, Baker & McKenzie

Below are steps business can take ensure they minimise the impact of the fallout.

• Monitor developments and assess the potential implications for your business and how to deal with them

Ultimately, the extent of the implications from a legal and business perspective will depend on the arrangements reached during the course of negotiations between the UK and the EU in the two-year period after the UK gives formal notice of its intention to withdraw.

• Consider if you will be subject to additional customs duties, tariffs or import requirements if the UK leaves the EU single market

The UK has been an attractive jurisdiction for businesses from English speaking countries, like Australia, to establish their operations and many have made significant investments in the UK as a gateway to the broader EU single market.

If the UK exits the EU single market, this could result in additional customs duties, tariffs and import requirements for goods moving between the UK and EU. This could result in higher costs and administrative requirements for Australian businesses using the UK as a gateway to the bloc.

Australian businesses may need to review their trading and contractual arrangements to seek to minimise such additional costs and requirements.

• Consider if you may need to obtain additional licences or authorisations to operate or trade in the EU

Some Australian businesses have been able to take advantage of EU-based licensing and authorisations that allow for passporting throughout the EU visa licences or authorisations in the UK.

These passporting arrangements may no longer be available and Australian businesses may then need to consider seeking separate registrations, licenses or authorisations or even establishing a branch in an EU member country, to be able to continue their business and trade in the EU.

• Assess the implications for your contracting arrangements and whether they need to be modified

Given the possibility for different customs duties, tariffs and regulatory requirements to apply in the UK and the EU, Australian businesses which currently have EU-wide contractual arrangements may need to consider modifying those arrangements to ensure that they can remain commercial viable and meet regulatory requirements in both the UK and the EU.

• Monitor the potential for disputes to arise

Depending on the extent of the impact of increased costs, regulatory requirements or other implications arising from the UK's withdrawal, there is a possibility that parties to contractual arrangements may try to rely on force majeure or material adverse change events to seek to modify or terminate such contractual arrangements, leading to the possibility of increased disputes and potential litigation.

• Financial services and insurance businesses should consider if they require additional licences, authorisations or to establish new branches to operate in the EU

London is a major financial centre and many international financial institutions and insurance companies, including from Australia, have established their base of operations and have obtained their primary licenses and registrations for conducting regulated financial services and insurance businesses in the UK.

This has allowed a broad range of financial institutions (including banks, investment firms, asset managers and payment service providers) and insurers to rely on passporting arrangements to carry on their businesses in another EU member state.

If the UK is no longer part of the EU single market and these passporting arrangements cease to apply, then financial institutions and insurers may need to seek separate licenses or registrations, or even establish a branch in another EU member state in order to be able to continue.

There is already speculation that, in response to Brexit, some UK based financial services businesses are considering moving at least part of their operations to other European financial centres such as Paris, Frankfurt, Dublin or Amsterdam, which could allow them to continue to take advantage of the EU passporting regime.

• Assess the need to implement additional systems and processes

Over recent years there has been a significant harmonisation of EU based financial services regulations.

Upon withdrawal from the EU, there is a possibility that the UK financial services and insurance regulations may begin to diverge from EU regulations, which may require businesses wishing to operate across the EU to implement additional systems and processes to be able to comply with any divergent or additional regulatory requirements.

• Consider the effect on mobility of your workforce across Europe

One of the most contentious issues surrounding the referendum was the ability for the UK to better control its immigration policies and the movement of people into the UK.

If this freedom of movement of people is curtailed and more stringent immigration requirements are imposed, this could impact Australian businesses with operations in the UK or EU by reducing their flexibility in being able to mobilise and utilise their workforces.

• Consider if you need to take further steps to protect your brand and other intellectual property

International businesses, including from Australia, have been able to effectively protect many aspects of their intellectual property across the EU, including through EU-wide trademark and design registrations.

There is also a proposal to implement a unitary patent regime. If the UK ceases to be part of these IP regimes, Australian businesses wanting to fully protect their IP throughout the UK and EU may need to seek additional registrations.

This could particularly impact Australian businesses operating in the pharmaceutical or biotech sectors.

• Determine if you rely on EU-wide competition exemptions and if new exemptions will be required

There is a largely harmonised competition regime across the EU, including EU safe-harbour legislation and block exemptions which allow businesses operating in the EU to undertake actions which might otherwise be considered anticompetitive.

If the UK withdraws from this regime, then Australian businesses operating in the UK may no longer have the benefit of such exemptions, and may also face additional requirements if the UK decides to implement differing competition regulation following its withdrawal.

• Consider if additional merger approvals will be required for major European acquisitions

Australian and other international businesses undertaking major acquisitions of businesses which have an EU dimension and met certain thresholds have been able to utilise a one-stop-shop for competition merger notification and approval.

If the UK ceases to be part of this regime, Australian businesses undertaking mergers or acquisitions involving both the UK and the EU may be required to make additional merger filings and obtain approval in the UK as well as the EU.

• Assess the potential tax consequences and whether you may need to modify your European business structure

Many Australian and international businesses have established their headquarters in the UK given the favourable tax regime and the ability to rely on EU tax directives which exempt interest, royalties and dividends from withholding tax when paid by companies in one EU member state to companies in another member state.

If the UK withdraws from this regime, depending on the effect of any applicable double tax treaties, UK companies receiving interest, royalties or dividends from their group companies in certain EU countries may no longer have the benefit of such withholding tax exemptions.

This may make the UK a less-attractive location for a European holding company. Australian businesses with European group companies may need to review their group structure if these tax implications eventuate.