“No Deal” Brexit: Impact on the TMT sector

An overview of the UK Government's technical notices on the impact of "no deal" which are particularly relevant to the TMT sector.

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In recent weeks, the UK Government has released a series of “technical notices” offering guidance on the consequences of the UK leaving the EU without there being a “withdrawal agreement” in place with the EU.

Whilst the UK Government has indicated that it regards the prospect of there being “no deal” by the 29 March 2019 exit date as unlikely, these notices are intended to ensure businesses and individuals are properly informed of the legal and practical repercussions of “no deal” and can make suitable preparations.

This note summarises the following published technical notices, which are of particular relevance to the TMT sector:

  • Personal data and consumer rights
  • Indirect tax 
  • Broadcasting and video on demand
  • Telecoms businesses
  • Mobile roaming
  • Copyright
  • Satellites and space
  • Horizon 2020 funding

As well as the notices above, TMT businesses should also consider the impact of the Government’s notices which apply across sectors, such as the notice relating to trading with the EU. 

Personal data and consumer rights

Background

 Key points to note

  • The technical notice focuses on how flows of personal data between the EU and the UK will continue to be enabled in the event of “no deal”.

  • In the UK, the EU General Data Protection Regulation (GDPR) and the Data Protection Act 2018 (the DPA) provide a comprehensive data protection framework.

  • Under GDPR, whilst transfers of personal data within the EU are not restricted, organisations established in the EU wishing to transfer personal data outside of the EU must take certain measures to protect the data, unless the transfer is to a country regarded as “adequate” by the European Commission (Commission).
  • The UK Government is ready to begin preliminary discussions on a decision to recognise the adequacy of the UK’s data protection regime now. The Commission has not yet indicated a timetable for discussions, suggesting that a decision cannot be taken until after Brexit and the UK becomes a third country.

  • To enable the continued free flow of data if the Commission does not make an adequacy determination in relation to the UK on exit:
    • UK organisations wishing to receive personal data from organisations established in the EU should consider assisting their EU partners in proactively identifying a legal basis for those transfers.

    • For most organisations, the most relevant alternative legal basis would be the use of Commission-approved model data protection clauses embedded in contracts. Alternatively, and in certain circumstances, a derogation to transfer personal data may be relied upon.
  • If the UK leaves the EU in March 2019 with no relevant agreement in place then, in recognition of the alignment between the UK and EU’s data protection regimes, the UK would (subject to ongoing review) allow the free flow of personal data from the UK to the EU.

  • The Information Commissioner’s Office will be providing additional guidance on the steps organisations would need to take to comply with data protection law, including in respect of overseas transfers.

  • EU organisations are encouraged to seek guidance from their respective data protection authorities.
Indirect tax 

 Background

 Key points to note

  • Businesses which trade in goods and/or services are subject to the UK’s Indirect Tax legislation (eg VAT and Customs), based upon the European Principal VAT Directive.

  • Goods which are brought in the EU from non-EU countries are cleared at the border where the relevant customs and excise duties and import VAT is paid, and then enter “free circulation” within the EU, meaning that goods are not subject to further customs procedures or duties once they have entered Europe.
  • If the UK leaves the EU with no deal in relation to the border, or even a compromise deal, there could be a “hard border” with the EU. Goods entering the UK will have to be cleared as imports, and will be subject to customs and excise duties and import VAT. Equally, goods which leave the UK and enter Europe will have to go through import procedures in order to be cleared for free circulation. Separate safety and security declarations would also need to be made by the carrier of the goods. Businesses need to consider the cost of additional duties, how they will manage import declarations and whether border delays will significantly impact speed to market. Businesses should also review contracts and Incoterms to ensure that they are aware of where and by whom declarations need to be made.

  • For movements of excise goods, the Excise Movement Control System (EMCS) would no longer be used to control suspended movements between the EU and the UK. However, ECMS would continue to be used to control the movement of duty suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel Tunnel. This will mean that immediately on importation to the UK, businesses moving excise goods within the EU, including in duty suspension, will have to place those goods into UK excise duty suspension, otherwise duty will become payable.

  • Low Value Consignment Relief will no longer be applicable. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing). Businesses should review the impact on pricing and import procedures where importing low value goods into the UK.

  • In relation to VAT rules, HMRC considers that the rules will broadly stay the same, however, they have highlighted some areas which may be impacted. Further impacts may be announced in due course:
    • For UK businesses supplying digital services to non-business customers in the EU the “place of supply” will continue to be where the customer resides. VAT on services will be due in the EU Member State within which the private customer is a resident. However, businesses will no longer be able to use the EU (Union) VAT Mini One Stop Shop (MOSS) to facilitate compliance. The Non-Union MOSS should be up and running by 1 January 2019, however, it is unclear how the transition to a different MOSS regime will work in practice.

    • For UK businesses supplying insurance and financial services, if the UK leaves the EU without an agreement, input VAT deduction rules for financial services supplied to the EU may be changed. Currently VAT is recoverable on certain financial services where they are supplied to a non-EU customer. This may be rescinded. Businesses should assess the potential cost impact of this change.

    • UK businesses will continue to be able to claim refunds of VAT from EU Member States, but in future they will need to use the existing processes for non-EU businesses. This process varies across the EU and businesses will need to make use of processes in the individual countries where they incur costs and want to claim a refund.
  Broadcasting and video on demand

 Background

 Key points to note

  • The technical notice outlines the two pieces of legislation that will impact audiovisual service providers post-Brexit:
    • Audiovisual Media Services Directive (Directive 2010/13/EU) (AMS Directive), and

    • Council of Europe Convention on Transfrontier Television (ECTT).
  • The AMS Directive regulates the provision of audiovisual media services, including video on demand. It establishes a “country of origin” principle, such that service providers can operate across the EU by obtaining a licence from a regulator in a single EU Member State (in the case of the UK, Ofcom) and be subject to the rules and regulations of that country only. The country of origin is determined using certain “establishment” and “technical” criteria.

  • The UK and 20 other EU countries are parties to the ECTT, which guarantees the freedom of reception between parties and prohibits the restriction of retransmission of compliant programmes. Signatory countries must also recognise Ofcom licences. In practice, signatories to the ECTT apply only the AMS Directive inside the EU single market.
  • If there is a “no deal” Brexit, the AMS Directive and its “country of origin” principle will not apply, and UK audiovisual media service providers may be regarded as providing services from a “third country” into the EU. EU Member States are free to impose restrictions on services from “third countries”, subject to the provisions of the ECTT.

  • Broadcasters are encouraged to check whether their current Ofcom licences will still be accepted in those EU Member States where their services are intended to be available. For broadcast services available in one or more of the ECTT countries, an Ofcom licence should still be recognised as the UK’s position as a party is unaffected by Brexit, although this may depend on provisions of the national law implementing the ECTT.

  • For broadcast services available in one or more of the EU’s non-ECTT signatory countries (Belgium, Denmark, Greece, Ireland, Luxembourg, The Netherlands and Sweden), an Ofcom licence is not sufficient and this will continue to be the case after Brexit. Broadcasters need to ensure they adhere to those countries’ licensing requirements.

  • In relation to video on demand services, which fall outside the ECTT regime, UK providers must apply the criteria in the AMS Directive to determine whether any EU Member State will have jurisdiction over its services, and are encouraged to seek related legal advice.

  • If a service is only available in the UK, Ofcom licences will still be valid after Brexit, and no further action will be required.
 Telecoms businesses

 Background

 Key points to note

  • In the UK, the Communications Act 2003 and the Wireless Telegraphy Act 2006 implement the EU Common Regulatory Framework for telecoms.

  • The EU Common Regulatory Framework is under review and the proposed European Electronic Communications Code (EECC) is expected to be adopted in Autumn 2018. EU countries will have 24 months from adoption to transpose the EECC into their national law.

  • If the EECC is adopted before exit day, with a deadline for transposition after such date, the UK Government has suggested it may implement the EECC’s substantive provisions into UK law and, subject to UK parliamentary business, in line with the EU timetable.
  • If there is a “no deal” Brexit, the UK Government’s view is that there are unlikely to be significant impacts on how telecoms businesses operate or on the protection of telecom consumers.

  • Parts of the UK regulatory framework would need to be corrected to remove EU-specific provisions (eg requirements to notify the Commission, policy objectives that include promoting the Single Market, and cross-references to EU obligations). The UK Government intends to use secondary legislation to make these corrections.

  • The World Trade Organisation’s GATS (General Agreement on Trade in Services) will enable UK operators to continue to provide cross-border telecoms services and operate within the EU.

  • Ofcom’s role is governed by EU regulatory principles that have been implemented into domestic legislation. The key principles of encouraging competitive markets and guaranteeing consumer rights will remain. Ofcom will continue to be able to tailor its approach to the needs of the UK telecoms market. The rules on spectrum allocation and assignment will be corrected to ensure Ofcom’s functions relating to this are, essentially, unchanged.
 Mobile roaming

 Background

 Key points to note

  • The EU Roaming Regulations regulate what mobile operators can charge each other for providing roaming services.

  • The Roaming Regulations:
    • allow UK citizens to travel in the EU with guaranteed surcharge-free roaming (known as Roam Like at Home), meaning mobile use costs no more than in the UK

    • require mobile operators to apply a default financial limit for mobile data usage of €50 and to send an alert once a device reaches 80% and then 100% of the agreed data roaming limit (these requirements apply anywhere in the world, not only the EU), and

    • extend to the wider European Economic Area (the EU and Iceland, Liechtenstein, and Norway).
  • If the UK and EU reach a deal on Brexit, it is likely that surcharge-free roaming would continue to be guaranteed during the likely transition period (until the end of 2020). Following this period, the arrangements for roaming, including surcharges, would depend on the outcome of negotiations concerning the future economic partnership between the UK and the EU.

  • If the UK were to leave the EU without a deal, the costs that EU mobile operators would be able to charge UK operators for providing roaming services would no longer be regulated after March 2019. This means surcharge-free roaming would no longer be guaranteed.

  • In this scenario, the UK Government intends to legislate to ensure that the same requirement to apply a default financial limit on roaming, and the same data usage alerts, remain UK legal requirements.

  • UK mobile operators could still elect to keep existing commercial arrangements with mobile operators in the EU (and beyond) to ensure existing roaming arrangements are maintained. However, this would be a commercial matter.

  • The notice highlights that a number of major mobile operators in the UK have stated they do not intend to change their approach to mobile roaming post-Brexit.
     
  • In the event of a “no deal”, UK consumers will need to have a greater awareness of the relevant roaming policies and the rights available to them.
 Copyright

 Background

Key points to note

  • The UK and other EU Member States are parties to international copyright treaties which provide copyright protection for works originating in, or made by nationals of, other countries, and such treaties are not related to membership of the EU.

  • There is a body of EU copyright law that includes several important cross-border mechanisms.
  • Although copyright protection will remain largely unchanged in a “no deal” scenario, the EU’s cross-border copyright mechanisms may no longer extend to the UK, despite these Directives and Regulations on copyright being retained in UK law via the EU Withdrawal Act 2018. Effects on the mechanisms of particular relevance to the technology sector are summarised below.

  • In relation to the Database Directive (Dir 96/9/EC), under which nationals, residents, and businesses of EEA member states are eligible for database rights in all EEA member states, UK owners of database rights may find that these rights are unenforceable in the EEA, and so may wish to seek other forms of protection.

  • The Portability Regulation (Reg (EU) 2017/1128), where consumers are currently allowed to access online content services (eg Netflix) when they are temporarily in another EU Member State, will cease to apply to UK nationals, meaning that online content service providers will not be able to offer cross-border access to UK consumers in the EU.

  • Under the Satellite and Cable Directive (Dir 93/83/EEC), a work protected by copyright may be broadcast into any EEA member state after clearing copyright for the Member State of origin. This means UK-based broadcasters may need to clear copyright in each Member State to which they broadcast.
 Satellites and space

 Background

 Key points to note

  • A “no deal” Brexit would impact on three principal space programmes in which the UK currently participates as an EU Member State and member of other European bodies:
    • positioning and navigation systems developed by the EU, namely the Global Navigation Satellite System (known as Galileo) and the European Geostationary Overlay Service (which supports Galileo)

    • an earth observation system providing information to support environmental, climate, and security management (known as the Copernicus Earth Observation programme), and

    • the EU Space Surveillance and Tracking (EUSST) programme, designed to protect EU space infrastructure from collision risks and to provide alerts about debris re-entering Earth’s atmosphere.
  • Impact of “no deal” on navigation systems
    • UK based users should continue to be able to access the “open signals” of Galileo and the European Geostationary Overlay Service if there is “no deal”. A politically sensitive development is that Galileo’s “Public Regulated Service”, an encrypted version of Galileo intended for governmental authorised users and sensitive applications which is expected to be operational from the mid-2020s, would not be available to UK authorities.

    • UK businesses and institutions would no longer be able to bid for contracts related to Galileo.

    • Organisations engaged in on-going contracts or procurements are encouraged to contact the relevant contracting authority to understand the impact of “no deal”. This inability to participate has prompted the Government to consider establishing an independent, UK-based navigation system.
  • Impact of “no deal” on observation systems
    • The UK would lose the right to participate in the Copernicus programme. Whilst UK users would still be able to access data produced by the programme’s satellites, the Government is uncertain whether this will include high-bandwidth access and has asked the European Commission for clarification.

    • UK businesses and institutions would no longer be able to bid for contracts related to Copernicus. The European Commission has been asked to clarify whether contracts with UK contractors would continue unaffected after Brexit day if there is “no deal”.
  • Impact of “no deal” on surveillance and tracking systems
    • The UK would lose the ability to provide services to EUSST (such as the Fragmentation service, which is currently provided from the UK), or participate in working groups. UK contractors currently providing services to EUSST, and EU providers looking to partner with UK counterparts, are encouraged to contact the relevant contracting authority to understand the impact of “no deal” on their agreements.

    • The Government has asked the European Commission to confirm whether UK satellite owners and operators currently receiving services from EUSST will continue to do so after a “no deal” Brexit.
 Horizon 2020 funding

 Background

 Key points to note 

  • Horizon 2020 is an EU programme which provides about €80bn of funding from 2014 to 2020 for research and innovation.

  • Funding focuses on three main areas: excellent science; industrial leadership; and tackling societal challenges.

  • The UK has secured €4.6bn of funding to date (14.3% of the total).
  • The UK and EU’s stated intention is that the eligibility of UK researchers and businesses to participate in Horizon 2020 will remain unchanged for the remaining duration of the programme. The UK’s continued eligibility to participate was agreed as part of the Financial Settlement between the UK and European Commission in a draft Withdrawal Agreement and was welcomed by the other 27 EU countries at the March European Council.

  • In the event of a “no deal” scenario, UK organisations may be unable to access Horizon 2020 funding for new projects after exit day.

  • In response, the UK Government has indicated that all successful competitive-bid EU projects that are submitted before the UK’s exit from the EU will receive guaranteed funding for the full duration of the project (although organisations from other countries who are in consortia with UK participants would not be covered).

  • This guarantee has since been extended to cover funding for successful bids where UK organisations are able to participate as a third country in competitive EU grant programmes. This extension runs from exit day until the end of 2020. This means that UK participants are still able to participate in Horizon 2020 calls open to third country participants from the date of exit, with funding provided via the extended guarantee. However, third country participation does not extend to all Horizon 2020 calls.

  • Current UK recipients of Horizon 2020 funding will soon be invited to provide data about their projects using an online portal, so that UK Research & Innovation (UKRI) has the necessary information to deliver the underwrite guarantee if required and inform recipients of the next steps.

  • The UK Government is still seeking to resolve the following issues:
    • how to deal with the situation where UK participants lead a consortium and are responsible for distributing funding to the other participants

    • possible non-compliance with Horizon 2020 rules resulting from the change in status from Member State to a third country (for example, where a consortium no longer meets the threshold for member state and/or associated country participants), and

    • the details of the UK’s continued participation as a third country in Horizon 2020 and the precise details of the eligibility criteria for UK participants to fall under the extended guarantee.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.