Shortly after the UK’s EU referendum, various companies made announcements on reducing staff and implementing hiring freezes. Some also said to consider alternative investment locations and the relocation of offices. Almost five months have now passed and dust settled down. It is a good time to do some stock-taking.
Jan-Willem Thoen – tax advisor PwC
What are companies already doing as a consequence of the vote? Are there any actions that they should already consider taking? In general, companies take a ‘prepare, but wait and see’ approach. Most of them have initiated high-level analyses of Brexit impacts on their business in order to create awareness and take action where required.
The financial services industry clearly has a different point of view in this regard, given the importance of financial services ‘passporting’ for the industry. So financial services institutions in the UK started to act proactively to avoid unnecessary disruption to key business processes once the UK leaves the EU. I have already seen first initiatives to start talks with local regulators and even applications for a financial services passport in mainland Europe, mainly Amsterdam and Frankfurt.
Similarly, many pharma companies are considering their options for future research and testing, as well as production, in light of the anticipated relocation of the European Medicines Agency (EMA) to another EU member state.
Yet, also for other business sectors the looming Brexit paralyses decision-making. This becomes apparent as some companies are holding off on new investments in the UK until there is more clarity on the future relationship between the UK and the rest of the EU. Non-European groups are anxious about the potential impact of Brexit and have become more in favour of mainland Europe jurisdictions when setting up European head offices.
Finally, groups that were in the process of dismantling mainland Europe legal structures (because of the relative advantage of the UK in recent years due to its tax rules), have now paused this process and consider maintaining their current legal structure as ‘stepping stone’ into the new EU of 27.
It should however not be forgotten that for some specific businesses the Brexit may offer new market opportunities and Brexit may result in an improvement in the UK legislation to make the UK more attractive to foreign investors.
For companies that are still in the ‘wait and see’ mode, we notice that the impact of Brexit is still inevitable, given the significant reduction in value of the GBP. For companies based in mainland Europe this means a significant reduction in profits from the UK but also opportunities on the M&A side.
Given the above, it is very relevant for the C-suite of EU mainland based companies to have a clear picture of the areas in their organisation that are likely to be impacted by Brexit. Having insight means being able to anticipate when decisions need to be made. This is crucial in order to be prepared once the UK government’s starting position for negotiations on the terms and conditions for the exit from the EU and future co-operation with the remaining EU member states becomes clearer. Preparing in advance also allows companies to take all required actions in time before the UK finally leaves the UK (in all probability in 2019).
Jan-Willem Thoen is tax advisor at PwC. Do you want to know more about the possible consequences of Brexit? Visit our special Brexit webpage.