knowledge 22 February 2019 |

Mitigating a ‘No-Deal’ Brexit

Today, 22 February 2019, and notwithstanding the hope that it does not come into legal effect, the Irish Government has responded to the challenge and published its proposed legislation – the “Withdrawal of the UK from the EU (Consequential Provisions) Bill 2019” (the “Withdrawal Bill”) – to mitigate a ‘no-deal Brexit’.  In launching the draft legislation, the Taoiseach said “We are doing all we can to avoid a no deal scenario…  This special law enables us to mitigate against some of the worst effects of no deal by protecting citizens’ rights, security, and facilitating extra supports for vulnerable businesses and employers.”

It is recognised that managing a ‘no-deal Brexit’ will be “an exercise in damage limitation”.

It should be noted that if the UK-EU Withdrawal Agreement (even if amended) enters into force on or by 29 March 2019 (or any agreed extension date), the Withdrawal Bill – certainly in its current form – will not be required.

Omnibus – multi-sectoral focus

The importance, breadth and scope of the matters and sectors required to be considered and legislated for in a ‘no-deal Brexit’ are such that the Withdrawal Bill takes the form of a single omnibus bill comprising 15 different parts relating to matters within the remit of 9 different government ministers.

In the context of business and our clients’ interests and needs, this Briefing in respect of the Withdrawal Bill addresses:

• Financial services
• Energy
• Data protection
• Tax
• Support to industry
• Employer insolvency

Context

The draft Withdrawal Bill must be seen in its context, namely, as part of a co-ordinated response at EU level to mitigate a ‘no-deal Brexit’.  Thus, it must understood as part of the preparedness plans of the European Commission (addressing important sectors such as aviation and financial services) and of the European supervisory authorities.  Those plans are likely to include a great number of pan-EU directives and regulations.

In this regard, certain other matters which may have particular significance in Ireland are also being contemplated.  These include:

• aviation:  a transition period post-Brexit for Aer Lingus to adjust its ownership structures to ensure that it is majority-owned by EU nationals so that it may continue to operate intra-EU services; and, subject to reciprocity, permission for UK-licensed air carriers to provide air transport services between the UK and the remaining Member States, also for a transition period;
• financial services:  various memoranda of understanding between the European Securities and Markets Authority  (“ESMA”) and EU national supervisory authorities on the one hand and the UK Financial Conduct Authority (“FCA”) on the other hand, regarding supervisory co-operation, enforcement and information exchange in a range of areas;
• agriculture:  the European Commission proposal to raise (from €15,000 to €25,000) the financial ceiling which a Member State may over a three-year period provide assistance to a farmer without seeking state aid approval; and
• UK legislation:  the UK’s own draft legislation to apply all EU law in the UK’s national law post-Brexit and simultaneously to adjust many aspects of EU law as it applies in the UK post-Brexit.

Further, the Withdrawal Bill is informed by the recognised political and business imperative that the arrangements of the Common Travel Area between the UK and Ireland should be preserved in full.  The arrangements permit a national of the UK or Ireland to move freely between the two countries and to reside and work freely in the other.  Jeopardy and uncertainty in respect of any of the arrangements will have adverse consequences, and in some cases may have a severe impact (for example, the possible relocation of staff following Brexit).

Whether there is an orderly withdrawal by the UK or a ‘no-deal Brexit’, more legislation will be required and new treaties will have to be agreed.  Therefore, the Withdrawal Bill may simply be the first of many legislative enactments that are required to settle matters for the full range of sectors currently facilitated by our common EU membership.

The Withdrawal Bill

The remainder of this Briefing provides an overview of the principal aspects of the Withdrawal Bill.

Financial services

Temporary extensions of existing arrangements and practices

The Withdrawal Bill deals with insurance and insurance distribution.  It proposes a temporary run-off regime which, subject to a number of conditions, will enable UK-authorised insurance undertakings and intermediaries to continue to fulfil then-existing contractual obligations to their Ireland-based customers for a period of three years post-Brexit.  However, the proposed run-off regime will not permit a UK-authorised insurer or intermediary to initiate new business in Ireland post-Brexit and in order to write or distribute a new policy post-Brexit a UK-authorised entity will have to obtain an authorisation from an EU Member State.

The Withdrawal Bill also provides for the temporary designation in Ireland of settlement systems already designated by the Bank of England under the UK’s domestic Settlement Finality legislation and empower the Minister for Finance to designate a third country system for the purposes of the European Communities (Settlement Finality) Regulations 2010 (the “SFR”), subject to certain conditions.  The effect of such a designation will be to extend the protections of the SFR to Irish firms using settlement or payment systems in a third country, including Irish firms using systems in the UK post-Brexit.

Energy

Integrity of the SEM to be maintained

Within the UK, Great Britain and Northern Ireland have separate legislation for their electricity and gas sectors.  Since 2007, Ireland and Northern Ireland have shared a wholesale electricity market: the all-Ireland Single Electricity Market (the “SEM”).  The SEM was established following the signing of a Memorandum of Understanding by the UK and Irish governments in 2006 and required complementary pieces of legislation to be enacted in Northern Ireland and in the Republic of Ireland.

The Withdrawal Bill addresses the operation of the SEM by providing the Irish regulator (the Commission for the Regulation of Utilities (the “CRU”)) – for one year – with a stand-alone, amplified power to alter electricity licences.

Interestingly, the CRU would be empowered to do so for this short period of time for the purpose of amending or facilitating the operation of the SEM in the context of Brexit.  It is proposed that, in contrast to the existing framework for amending electricity licences, a licence amended by the CRU in this context could not be appealed to a Ministerial Appeal Panel.

Data protection

No substantive changes proposed

The Withdrawal Bill does not propose any significant substantive change to data protection law in Ireland.  Indeed, it is notable that the Withdrawal Bill proposes fewer amendments than those in the General Scheme on which it is based.  Therefore, it is unlikely that the Withdrawal Bill will have a significant impact on most organisations’ preparations for a ‘no-deal Brexit’.  For example, a controller of personal data in Ireland transferring data to a controller or processor based in the UK will still need to utilise a GDPR transfer mechanism (such as EU-approved model clauses) to allow those transfers to continue lawfully where there is a ‘no-deal Brexit’.

Tax

Continuity ensured

The Withdrawal Bill proposes a range of amendments to current taxation legislation with the objective of ensuring “continuity for business and citizens in relation to their current access to certain taxation measures.”  The proposed changes focus on adjustments to Income Tax, Corporation Tax, Capital Tax, VAT and Stamp Duty legislation, including in respect of reliefs and allowances that are contingent on residency or establishment within the European Economic Area (the “EEA”), and the retention of certain anti-avoidance provisions.  In order to maintain the status quo for taxpayers in Ireland post-Brexit, the Withdrawal Bill proposes (broadly) to extend relevant legislative definitions that currently refer to the EEA to encompass the UK.

Many Irish companies which trade currently with the UK, particularly small and medium-sized enterprises (SMEs), will welcome the proposed changes regarding VAT.  Under existing laws, post-Brexit an importer of goods from the UK would have to pay VAT as soon as the import lands in Ireland.  However, the Withdrawal Bill proposes that, in respect of imports from the UK post-Brexit, traders would continue to make VAT returns every two months and so in terms of VAT administration (and cash-flow) the position would remain largely unaltered.

Support to industry

Enhancement of Enterprise Ireland’s investment aids

The Withdrawal Bill proposes to empower Enterprise Ireland:

• to offer enhanced support to companies that are involved in research and development;
• subject to Government approval and potentially to state aid approval also, to lend larger amounts to individual businesses; and
• to participate in certain types of follow-on investments in supported businesses (for example to assist a company through a restructuring programme).

The further support or aid may be up to €7.5m (and in certain circumstances with an aggregate ceiling of up to €15m) without Government approval.

Employer insolvency

Continuation of protections for employees post-Brexit

The Withdrawal Bill proposes that a person employed or habitually employed in Ireland and whose employer is or becomes insolvent under the laws of the UK will continue to be entitled to existing EU protections in Ireland.

Other sectors

The Withdrawal Bill also proposes changes to ensure – post-Brexit – the continued operation of cross-border public transport services (both road and rail) and, in respect of UK nationals in Ireland, continued operation of social welfare payments, student support and cross-border healthcare.

Next steps

The current understanding in respect of the Withdrawal Bill’s parliamentary progress is as follows:

• Week commencing 25 February: Second Stage in Dáil Éireann
• Week commencing 4 March: Committee, Report and Final Stage in Dáil Éireann
• Week commencing 11 March: Seanad Éireann

It seems likely that the Withdrawal Bill will be subject to amendment as it progresses through the Houses of the Oireachtas.