The day after the Brexit vote June 23, the United Kingdom reached peak uncertainty, says Jeremy Pilmore-Bedford the country’s Atlanta-based consul general serving the Southeast.
Now, it’s time to move on and find the opportunities in the new reality, the diplomat and other business experts suggested at a Dec. 1 Arnall Golden Gregory LLP forum on the business impacts of the historic vote to leave the European Union.
Mr. Pilmore-Bedford stressed that with new Prime Minister Theresa May assuring the world that “Brexit means Brexit” and laying out a tentative schedule for starting the process in 2017, investors can count on the break to happen in a relatively structured and timely way, despite the muddy outlook for negotiations with the EU.
“That quite considerably narrowed the amount of uncertainty. It took away the political uncertainty that was there at the time, and you saw that in the reaction from the markets as well,” the consul general said.
Two “red lines” for the U.K. in those talks will be the ability to control immigration and to get out from under the European justice system, positions it will try to hold while also retaining tariff-free access to the EU market of 500 million consumers, Mr. Pilmore-Bedford said. That’s a tall order, according to some European leaders, who have been holding their cards close to the vest.
The U.K. also faces opposition to Brexit at home, with Ms. May’s Conservative government having appealed to Britain’s Supreme Court a decision asserting that Parliament must approve determine the prime minister’s decision to invoke Article 50 of the Lisbon Treaty, which starts the two-year clock to reach terms on the separation.
“I don’t think that will ultimately make any difference if the Supreme Court has to vote on exiting the European Union, on invoking that Article 50,” Mr. Pilmore-Bedford said.
Even if this and other suits are successful, the consul general doubts Parliament has any appetite to introduce another referendum that could upend the first vote. Brexit wasn’t binding, but it was a divisive moment for the nation that few want to repeat. Plus, it’s mistrust in politicians that fueled the “leave” vote in the first place, he said.
Despite (and perhaps in answer to) warnings that the U.K. would see its global trade profile shrink upon leaving the EU, Mr. Pilmore-Bedford has already seen a more intentional approach by his government with a view toward the day it regains full negotiating power currently held at the European level.
“As a result of the referendum Britain will not become introspective, we will not become ‘Little England.’ Britain will be much more globally engaged than ever before,” Mr. Pilmore-Bedford said.
Already, it has reoriented itself with a new Department for International Trade (formerly U.K. Trade and Investment), with ministers heading overseas to restore existing ties and build new relationships ahead of what could be a contentious Brexit process. Bilateral deals are likely to be sought as multilateral trade agreements falter. The Atlanta consulate expects a flurry of trade activity early in 2017.
Until at least 2019, the U.K. remains in the EU, and it’s continuing to make a strong case as a European gateway even as the future is in flux, experts said at the event while laying out opportunities and pitfalls.
Even after the vote, companies like Facebook, Lockheed Martin, Google and Nissan have announced substantial expansions in the U.K., moves that British officials say underscore long-term confidence in an economy set to grow 2 percent this year even as the pound stays at record lows after plummeting against the dollar immediately after the Brexit vote.
There are practical advantages that don’t change with Brexit, tax and legal experts said.
Most obviously, pound-denominated mergers have heated up with the currency at a trough against the dollar. Britain’s export sector could see gains for the same reason.
For foreign firms using the country as their European headquarters, it’s relatively simple to set up a British holding company that can operate other European subsidiaries, activating a variety of tax advantages, said Stephen Bryan of PKF Cooper Parry, an accounting firm based in Birmingham, England.
Through a double-taxation treaty, subsidiaries of American firms bringing profits back into the U.S. only pay the difference between British taxes and American corporate tax rate when repatriating funds to the U.S. While currently substantial, that difference would be negative if President-elect Donald J. Trump comes through on his plan to reduce the U.S. rate to 15 percent from its current rate of 35 percent. By 2019, the British government has pledged to reduce its rate to 17 percent from 20, making it one of the lowest-taxed jurisdictions in the G20.
British subsidiaries also avoid taxes on the sale of other European subsidiaries, and the American parent company would face no capital-gains taxes, which are levied only against firms domiciled in the U.K. The British subsidiaries are also open to innovation incentives like research and development credits, a reduced rate of 10 percent on profits from patented technology and no taxes on dividends paid out of the U.K.
Meanwhile, though, American firms should continue to avoid “blind spots” in their European expansions, paying close attention to the EU’s sensitivity to data privacy and the need to protect intellectual property and trademarks across multiple jurisdictions, said Mark Barron, an attorney with law firm Taylor Wessing, which has more than 1,400 attorneys spread across offices in London, Singapore, Germany and Silicon Valley.
Companies should fully expect to manage their workforce successfully in the U.K., unlike some stricter countries like France, but they should also know their limits. The U.K. has a “sole representative” visa that allows U.S. executives to enter the country for the purposes of setting up an entity. After that, the company requires a sponsor license that can take four to six months to procure.
Also with PKF Cooper Parry, Matthew Hodgson said companies should make sure to be aware of their value-added tax liability in the U.K., especially firms selling goods or even downloadable items like software or media online.
He added that as Mr. Pilmore-Bedford hinted, one upside to Brexit could be the reduction in British corporate appeals at the European Court of Justice, as well as the ability for the U.K. to set its own VAT policies. Under EU regulation, member states must charge a minimum of 15 percent on the standard rate and 5 percent rate on product categories deemed eligible for a reduced rate.
The Arnall Golden Gregory Brexit seminar followed up on an October event helping companies learn about navigating the European market.
Later in the Brexit seminar, Atlanta economic development leaders provided a snapshot of how to do business in the region.
View Global Atlanta’s full Brexit coverage here.