Brexit and its impact on the Technology, Media and Telecommunications businesses in 2019

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The UK is scheduled to leave the EU on March 29, 2019 and a considerable number of issues remain unsettled on both its withdrawal terms and on future economic trade and arrangements. A transition period until the end of 2020 has been agreed in principle (under which the UK will continue to be subject to EU law), but has not been formally ratified or legally adopted. As such, there are a range of possible outcomes, including the UK leaving the EU without any deal.

The latest UK government White Paper of July 2018, proposes a new trading relationship with the EU, but it does not comprehensively cover arrangements for services. Technology, media and telecommunications businesses may think they are less vulnerable than other businesses, with less significant restrictions to market access, but they face a number of disruptive changes that could affect access to talent, supply chain, licences and permissions, intellectual property protection and data flows, which could substantially disrupt the way they do business. The winners from these changes will be those that have assessed the potential threats and opportunities and prepared for them.

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How could Brexit affect TMT (Technology, Media and Telecommunications) businesses?

  • Digital single market
    After leaving the EU, the UK will not be part of the nascent EU Digital Single Market, potentially adding friction to cross-border trade and affecting the further growth of e-commerce, unless rules remain closely aligned. The UK will have reduced ability to influence EU technology rules in future as services are not generally significant
    in trade agreements. As a consequence, a quarter of companies surveyed by the Silicon Valley Bank have stated that they would open an EU outpost because of Brexit.
  • Supply chain and procurement
    Many technology companies supply physical hardware, and all supply chains are vulnerable to tariffs and border delays due to increased checks and queues. Companies may look to stockpiling parts to avoid disruption with new warehousing or Authorised Economic Operator (AEO) status to smooth clearance.
    For media, tariffs could raise costs on items such as books, toys and video games, and the movement of inventory could be delayed and disrupted due to increased time at borders.
    Similar issues arise for telecom companies that supply equipment such as handsets and hubs and may have contractual commitments to effect repairs or replacements.
    Export controls on strategically sensitive technology may diverge between the UK and EU.
    All parts of the sector will procure equipment for their own use, which could face supply disruption and may prompt restructuring of central procurement processes.
  • Access to talent
    Many parts of the sector rely on skilled labour with technology companies employing many coders and developers from the EU. According to the Recruitment and Employment Confederation, a fifth of London tech jobs are filled by EU workers. Immigration rules post-2020 are undecided and filling any gap with non-EU workers may be difficult due to monthly visa caps.
    Media businesses also employ many EU workers so immigration limits could be damaging and any delays in issuing visas may affect staff mobility and the movement of crews for film, the news and music tours.
    Access to talent is a top concern for telecoms with curbs to mobility affecting the number of software engineers and hindering the business model of multi-location businesses.
  • Regulation, licensing and protection
    Technology companies may be the least affected by changes in regulation and licensing, but there could be a significant impact on media, e.g. the UK currently licenses 1,200 TV channels, a third of which broadcast into the EU. For those broadcasts to continue, the UK must reach a free trade deal covering audio-visual services.
    Otherwise, UK broadcasters will be forced to move jobs and investment to serve European viewers, and UK consumers may lose access to some services.
    For telecoms, any changes in the media content rules will affect the packages they can offer to customers.
    EU regulation of telecoms has been largely positive for the customer by expanding consumer choice and reducing prices. In addition, consistency in the rules and how they are enforced can bring stability for business but regulatory convergence must be agreed between the UK and the EU on rules covering roaming and call
    termination.
    On protection of intellectual property rights, European patent protection may be little affected but protection for trademarks, registered designs and copyright which in Europe are governed by EU directives, such as the Copyright Directive 2001, Software Directive 1991 and Trademark Directives 2008 and 2015, may change so that there could be divergence over time.
    Copyright on software is likely to be relevant for technology companies and telecoms and other copyright protections for media, which wants to avoid disruption to enforcement of copyright protections across borders.
    Some copyright laws are governed by international treaties, but businesses also have a desire to maintain alignment with the EU.
  • Finance and tax risk
    Any changes to the corporate structure to move functions or IP, to mitigate the impact on the supply chain, or ensure continued market access could have broad ranging tax implications.
    Additional Brexit uncertainty could impact exchange rates and economic growth and have implications for pricing and margins.
    Additional customs duty costs and benefits also could directly impact margins.
    If no longer governed by EU Directives, VAT rules in the UK could change and VAT simplifications cease.
    UK to EU payments may be subject to WHT depending on terms of tax treaties.
The above article has been written by Janet Moran and taken from Deloitte’s News website. You are authorized to view, copy, print, and distribute (but not modify) the content on this page. 

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