Brexit-hit firms may find solace in transition period

Mumbai: Separation of the United Kingdom (UK) from the 28-member European Union (EU) is likely to cast a long shadow over the Indian companies operating in these jurisdictions.

As things stand, the UK is due to leave the EU on April 12, with or without a deal. However, UK Prime Minister Theresa May has again requested for an extension of the date until June 30, which EU leaders will consider on April 10.

Over 800 Indian companies operate in the UK, employing over 110,000 people, with 12 Indian companies each employing over 1,000 people, according to a law firm advising organisations navigate the complex multi-jurisdictions likely to emerge during and after Britain’s exit from the European Union.

“With Brexit uncertainty continuing to prevail, with no indication of consensus in the UK Parliament for the government’s negotiated deal with the EU, businesses around the UK, Europe and internationally are bracing for chaos of a no-deal ‘hard’ Brexit,” said UK-based law firm Zaiwalla & Co LLP.

Several benefits are likely to be taken away after the UK’s exit from the EU. Indian and other international companies based in the UK still benefit from several laws and legislations in place due to the UK’s current ties with the EU. This includes access to the single market and financial markets, which bring about the benefits of frictionless free movement between countries, free trade, access to EU government contracts and lower administration costs.

However, depending on the final outcome, many businesses will be faced with a period of uncertainty as the UK’s withdrawal from the EU will mean that these benefits will likely be lost. Companies will also have to deal with two separate jurisdictions, as the jurisdiction will be split between the UK and the rest of Europe. This is expected to cause confusion, increase costs and restructuring as the UK loses its major trading partners.

“Many companies, including several Indian entities, have their European headquarters in the UK as the English speaking country is sought after for its solid financial regulatory systems, stable governance and impartial judicial system, while acting as the gateway to Europe through its membership to the EU single market. Therefore, any Brexit scenario involves an immediate change in regulations, jurisdictions and legislations which will affect EU facing businesses operating in the UK,” said Pavani Reddy, managing partner of Zaiwalla & Co.

However, there is provision of a transition period as a part of the withdrawal agreement. It refers to a period of time after Brexit until December 31, 2020, to get everything in place and allow businesses and others to prepare for the moment when the new post-Brexit rules between UK and EU begin.

The transition period would also allow more time for the details of the new relationship to be fully hammered out. Free movement would continue during the transition period.