European Trade and Business Relocation — Part 2

In the last post published here, we mentioned how business relocation is not necessarily a binary choice where the entire organisation moves elsewhere, on the contrary.

There are at least four, if not more, areas where an agile business can leverage a presence in a different environment. And if this is true for a big organisation, thanks to technological improvements it is even truer for SMEs.

We also raised the question of why acting now instead of ‘watch and see’, and we will provide more flavour on both points together in this post as they somehow go hand in hand.

A business relocation might present some challenges.

From an operational point of view, the type of the business and the nature of the trade will require identifying the location of suppliers — and the supplier’s value chain — and/or customers in order to decide for an optimal location. When logistics and access to a qualified talent pool is a key requirement, proximity might be a critical factor in decision-making.

Then the next question is considering if and how any relocated function will be staffed.

Some European jurisdictions allow the remote management of a company, other doesn’t or put some limits on what can be done remotely. The second scenario might involve relocating staff or recruiting locally. And for existing personnel, assuming their willingness to move, it must be taken into consideration their ability to move in terms of work permits. If this is not an issue at the moment, things might change from next year. How quickly and under which terms nobody knows yet.

From a legal point of view, even within the EU, employment laws can differ between jurisdictions and it is important to clearly visualise a map of these differences.

At the moment of writing this post, laws and frameworks regulating contracts and trade within the EU are well established and quite clear. This, again, might no longer be the case from next year. If it is safe to assume that abrupt changes will not occur overnight, it is also reasonable to assume that the needs of organisations that have an already established presence in one or more Member States, might be considered at a higher priority level.

From a taxation point of view being a member of the EU provides the following advantages for a business:

• Free movement of goods without custom tariffs
• Right of establishment and freedom to provide services. As laid down in the Articles 49 and 56 of the TFEU It is the obligation of Member States to ensure an unhampered right of establishment of EU nationals and legal persons in any Member State and the freedom to provide cross-border services, with very few exceptions to this rule.
• Free movement of Capital. The acquis in this area is based on the Treaty on the Functioning of the European Union, in particular, Articles 63–66. Annex I of Directive 88/361/EEC provides the definition of the different types of capital movements. Additional interpretation of the above Articles is provided by relevant case-law of the European Court of Justice and Commission Communications 97/C220/06 and 2005/C293/02.

At the cost of over-simplifying a complicated matter that can be better untangled by a qualified tax advisor, the three aforementioned principles usually minimise or cancel risks in the areas of Residency and controlled foreign corporations rules, Transfer pricing, Exit charges and Indirect taxes. This is clearly a better and more desirable way to trade in one of the biggest market worldwide, even though we account for changes due to the UK leaving it.

Again, all of the above might no longer be true from next year for British Businesses.

Catch-22

It has been repeated over and over again that nobody knows how future negotiations to maintain free trade access to the Single Market will develop.

One thing seems clear so far: that a cherry-picking of desired part of the current framework will be vetoed by at least some EU member states.

The main driver of uncertainty may reside in this catch-22 situation.

Therefore, in this scenario, it might be prudent to ask the following question: establishing, or expanding, or increasing efficiency in the EU market. Shall we do it now or before the negotiation starts?

We will expand even more on possibilities, including funding opportunities in the next post of this series.

Meanwhile, we invite you to start the conversation with us on
http://www.brexit-strategy.com

Please feel free to let us know what you believe are your main points of concern at this stage.