Non-European Businesses with UK Operations need to take action in January 2019
Whichever side of the Brexit debate you've been on - and most people have a side - that last two years since the UK's referendum have not been especially glorious. For non-European businesses including those from the US with operations in the UK you need to act urgently. On March 29th, 2019 the UK will (under the current plan) leave the EU and an array of legal, regulatory and taxation provisions that would enable you to restructure your European businesses right now will effectively disappear. After this date any restructuring – such as moving corporate entities, shares, people – will be hit with the usual cross-border restrictions that apply to international business. Today, with the UK on the inside of the EU you could benefit from the EUs four freedoms of movement – people, capital, goods and services. This article explains this in more detail and takes a risk driven view of how to respond in January 2019 by focusing on your critical priorities and developing comprehensive plans within a framework flexible and responsive enough to handle the ongoing political turmoil and outcome uncertainty in the UK.
Before we dive into the meat and potatoes of this article a quick recap for anyone who sometimes struggles with the geography of Britain and Ireland. The easiest way to explain this in via some simple algebra:
England + Wales + Scotland = Great Britain
Great Britain + Northern Ireland = United Kingdom
United Kingdom + Republic of Ireland = British Isles
Out of all of these the United Kingdom (“UK”) and Ireland are the two legal, sovereign countries. Everything else is just a geographically useful handle. Inside of the European Union “EU” (UK, Ireland and 26 other countries) none of this really matters. But Brexit will take the UK out of the EU and all hell potentially stands to break lose. Some of which could have ugly repercussions for non-European businesses who have not taken some critical actions.
For non-European businesses the key thing to be aware of is that the UK legally leaves on March 29th, 2019 and after that date many of the business restructuring options available today either close off or potentially become significantly more expensive.
Responding to Brexit has become a huge, fast moving, multi-dimensional exercise in risk management and as of writing there are at least three possible outcomes:
1. Brexit under the terms negotiated by the British Government (or very close to them) the so called Chequers Plan (after the British Prime Minister’s country residence);
2. Brexit without any agreement over exit terms or future relationship with the EU (‘Hard Brexit’);
3. No Brexit probably following a second referendum in January or February 2019.
Any non-European business with operations in the UK needs to be urgently preparing for scenarios 1 and 2 and thinking through the wider implications of 3.
How much can go wrong? Well, there are a lot of areas that need to be thought through, but the big risk is that a restructuring of your EU businesses is not completed before the big day. Before that date EU rules apply in the UK and so moving businesses and legal entities from the UK to another EU country is simple and tax-free. Afterwards there is a risk that the UK will tax the exiting business through one mechanism or another – withholding on dividends, royalties, interest, VAT, capital gains, stamp duty and perhaps others.
But tax related risks are the tip of a pretty big and ugly iceberg. Any large business should already have a Brexit Program up and running covering at least the following workstreams:
You might choose to slice and dice this list differently to suit your business, but you better have some smart people in rooms thinking about each of these and undertaking a risk assessment, impact analysis and some planning. Each of these areas needs to cut across your functional departments from the front to the back of the business ensuring that no part of the business is missed.
Appoint a strong, visible c-suite level individual to head up the Brexit Program in the role of Program Director. Beneath them you need a super-capable Program Manager experienced at leading complex, cross-silo, cross-geography transformation programs with significant resources.
Your workstreams and function matrix might look a little different than the one below but each box with an intersection needs a responsible adult owning that area.
During this stage of the program you need to be getting clear on goals, scope, resources, budget, timeline and beginning to mobilize the teams and move into action.
Having identified the workstreams, leaders need to be appointed and a series of discovery workshops run to work out the detailed scope and likely impact of Brexit on your European businesses under the three different scenarios. Think of this as a giant, complex risk assessment exercise with each Brexit scenario being analyzed for each workstream aspect and then the impact and probability of the events being calculated to give an over all risk rating. This naturally leads to a prioritized risk event list that covers the entire landscape of your business and allows investment in management strategies.
Working against each prioritized risk in order, a management plan should be developed. The plan needs to cover at a minimum
Working through the risks one by one allows a cumulative view of the total benefits and costs that can be achieved by addressing the risks in priority order. This then allows senior management to make smart decisions about the costs and benefits of various risk responses and which risks to accept and spend no further time or money managing. This structured, managed approach can quickly yield a strategy that encompasses the full scope of the challenge and which prioritizes resources towards those risks that most need management and where the most positive impact can be achieved. The exercise can be done a little more quickly without the same level of rigor, but can you be sure that you haven’t missed any ‘gotchyas’?
Brexit is significantly complicated that the exact outcome of the UK’s birthing cramps are not yet know and may not be until the last minute. You will need to respond to this by developing plans that are agile, modular and which can be assembled quickly to meet any scenario. Techniques to achieve this are drawn from Agile Project Management where blocks of functionality/delivery couched in User Story terms can be quickly built. But unlike an IT project this is a cross-business silo delivery and all involved need to understand this distinction and its impact on the process.
As the Brexit situation becomes clearer the modular plans can be executed to address specific risks or held back as necessary.
If, after reading this, you feel a need for professional help, Transform with its pool of skilled, experienced regulatory change professionals (using colleagues in Europe, the US and elsewhere) can quickly respond to your needs.
The small print: this article is entirely the author’s opinion and is in no way representative of the views of any current or past employer or client.
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