Brexit legal hub

What has changed in law? This year, EU law no longer applies to the UK, and the Trade and Cooperation Agreement (TCA) governs relations between the parties reached after lengthy negotiations. Due to the broad scope of EU law, Brexit’s impact has been felt by companies across various sectors  – having a business link with the UK means challenges in adapting to the changed regulations and new rules set out in the TCA and domestic law of the UK and EU member states.

We invite you to look at the changes that have taken place in finance, taxation, customs, and data protection.

Fintech

Access to the EU single market and the free movement of the capital provide significant benefits to the EU-based financial market participants. I.e., a  single license issued in one Member State allows the financial market participant to operate freely in the whole EU market.

By taking advantage of such a benefit, many fintech players were enabled to provide financial services across the whole EU from their establishment in the UK.

However, the UK’s exit from the EU cut off access of the UK licensed market participants to the EU Single Market. Unfortunately, the TCA does little to facilitate the UK-based financial market participants' access to the EU market. Therefore, from 1st January 2021 all financial market participants licensed in the UK lost their rights to offer their services to EU customers.

 

The UK and the EU have agreed to issue the Memorandum of Understanding regarding financial services regulation, financial stability, and equivalence by the end of March 2021 that will give further clarity on the equivalence rules.

Equivalence refers to a decision by one state to recognise another state's legal requirements for regulating a good or service. In practice, this means that a financial market participant would need only to comply with one set of requirements in both states and could access that state's market under the scope given by that equivalence decision. Therefore, an equivalence decision made by the EU would allow the UK to retain certain rights to access the EU market.

However, it should also be noted that equivalence is not a substitute for the passporting rights created for the EU based financial market participants. Equivalence covers fewer services and allows operation in fewer areas. Consequently, it will not allow full access to the EU market for the UK-based financial market participants.

 

Until today, the European Commission has only granted time-limited equivalence decisions allowing UK central counterparties and central securities depositories market access in the EU.

Taking into account the uncertainty of the future equivalence decision and limited scope of operational rights granted with an equivalence, the UK-based financial market participants wishing to continue the provision of financial services in the EU have to consider other market access measures, including:

 

Even before 1st January 2021, the amendments to the tax legislation were adopted in Lithuania. These amendments established that after the withdrawal of the UK from the EU the transitional period of 2 years was set. During this transitional period, the provisions of the laws on corporate income tax, personal income tax, state fees and charges, and charity and sponsorship will continue to apply to the UK to the same extent as to the EU member states. I.e., during 2 years (from 1st February 2020 to 31st January 2022) all exceptions and reliefs enjoyed by the EU member states are applicable, to the same extent, to the UK companies too.

Meanwhile, the law on the Value Added Tax does not provide for such a transitional period. Thus transactions with the UK-based companies are subject to the provisions of the law on the Value Added Tax that are applicable to third countries. It should be noted that a UK company registered in Lithuania as a VAT payer until 28th February 2021, is not under the obligation to have a fiscal agent in Lithuania. If the Trade and Cooperation Agreement Between the EU and UK will enter into force in full scope, there will be no obligation to have a fiscal agent in Lithuania. Otherwise, the STI will inform all the companies about a new obligation regarding a fiscal agent.

 

Starting from 1st January 2021, import/export procedures have been and will continue to be applied to the transportation of goods from Lithuania to the UK or vice versa. Most importantly, Lithuanian importers applying for the preferential regime (not to apply import duties) need to ensure that the UK exporters can prove that goods comply with the requirements of preferential origin (i.e. the importer needs to have a statement on the origin of goods issued by the exporter).

Data Protection and GDPR

The Brexit transition period came to an end, and a new UK data protection regime came into effect before midnight of 31st December 2020. As of 1st January 2021, the EU General Data Protection Regulation (GDPR) ceased to apply to the UK directly, but effectively with certain amendments, became part of UK domestic law.

This amended version of the EU GDPR is now commonly known as the "UK GDPR". It contains provisions similar to those enshrined in the original EU GDPR but stands separate from EU GDPR as part of UK domestic law.  Alongside the creation of the UK GDPR, various consequential amendments were also made to the UK Data Protection Act (DPA). This new UK data protection regime, together with the UK's departure from the EU, requires UK, EU and international businesses to take the steps necessary of ensuring that they remain compliant with the two separate data protection regimes in place: EU GDPR and UK GDPR.

In essence, organisations with pan-European operations are likely to have to comply with two separate but similar legislative regimes, with the consequential risk of dual enforcement action (by EU Data Protection Authorities in the EU and the ICO in the UK) in the event of any breach. This also means that organisations need to consider carefully, whether they are within just one or both regimes and take the appropriate actions accordingly. Currently, businesses acting both in the UK and the EU need to consider a number of issues, including data transfers between the EU and UK, records of processing, contracts, policies and procedures, and requirements to appoint EU data protection representatives.

Access to the EU single market and the free movement of the capital provide significant benefits for the EU-based financial market participants, i.e. with merely one single license issued in one Member State the financial market participant can freely operate in the whole EU market.
 
Taking advantage of such a benefit many fintech players were enabled to provide financial services across the whole EU from their one establishment in the UK.
 
However, the UK exit from the EU cut off access of the UK licensed market participants to the EU single market and, unfortunately, the UK-EU Trade and Cooperation Agreement does little to facilitate the UK based financial market participants’ access to the market. Therefore, from the 1st of January 2021 all financial market participants licensed in the UK lost their rights to offer their services to EU customers.
 
What has been done yet, the two sides have agreed to issue a Memorandum of Understanding regarding financial services regulation, financial stability and equivalence by the end of March 2021 that will give further clarity on the equivalence rules.
 
Equivalence refers to a decision by one state to recognise another state’s legal requirements for regulating a good or service; in practice, this means that a financial market participant would need only to comply with one set of requirements in both states and could access that state’s market pursuant to the scope given by that equivalence decision. Therefore, equivalence decision made by the EU would allow the UK to retain some rights to access the EU market.
 
However, it should also be noted that equivalence is not a substitute for the passporting rights created for the EU based financial market participants. Equivalence covers fewer services and allows operation in fewer areas, consequently it will not allow full access to the EU market for the UK based financial market participants.
 
Until today, European Commission has only granted time-limited equivalence decisions allowing UK central counterparties and central securities depositories market access in the EU.
 
Taking into account the uncertainty of the future equivalence decision and limited scope of operational rights granted with an equivalence, the UK based financial market participants wishing to continue the provision of financial services in the EU have to consider other market access measures, including:

 

While the UK and the EU have recently singed the Trade and Cooperation Agreement (TCA) (applicable from 1 January 2021), the TCA does not provide any new rules aimed at facilitating cross-border dispute resolution.

As such, starting from 1 January 2021 UK-EU dispute resolution is governed by the international conventions, domestic rules and – to certain extent – relevant provisions of the Withdrawal Agreement.

 

Below we provide relevant factors which stakeholders should consider while cooperating with UK partners and/or while planning to initiate court proceedings with UK-EU element (for example, while entering into a contract with UK-based partner, concluding a choice-of-court agreement in favour of UK courts, planning to enforce a judgement rendered by the UK court in EU-27 and other).

 

 

Before 31 December 2020: the rules on jurisdiction applicable to civil and commercial matters were laid down by the Brussels I Recast (Regulation No 1215/2012).

 

From 1 January 2021: the jurisdiction rules established in the Brussels I Recast will continue to apply in all legal proceedings commenced before courts of both the UK and the EU Member States before 31 December 2020. 

 

Proceedings commenced before the English courts on 1 January 2021 or later will be subject to the common law rules. These rules substantially differ from the EU conflict of laws rules and provide legal instruments unknown in EU dispute resolution regime, for example, (i) the mere temporary presence in the UK as a ground for assuming jurisdiction, (ii) refusal to hear an action brought against a UK-based defendant due to the forum non-conveniens (i. e. doctrine allowing a court to dismiss a civil action even though the court has jurisdiction over the case and the parties) and (iii) anti-suit injunctions (i.e. orders preventing an opposing party from commencing or continuing a proceeding in another jurisdiction or forum).

 

Proceedings commenced before the courts of EU-27 on 1 January 2021 or later will be governed by domestic rules of each particular Member State. In the absence of one uniform legal instrument, these rules will undoubtedly differ from one Member State to another. As such, it is advisable to seek legal advice on a particular jurisdiction before initiating a case.

 

The domestic rules on jurisdiction would cease to apply, if the UK became a contracting state to the Lugano Convention. On 8 April 2020, the UK expressed its wish to accede to the Lugano Convention which establishes the rules on international jurisdiction analogous to those established in the Brussels I Recast Regulation. So far, the UK has not acceded to the convention, as its accession requires the unanimous agreement of the contracting parties, namely Denmark, Iceland, Norway, Switzerland and the EU. The EU is yet to give its support to the accession. However, considering that the EU and UK have reached the TCA it is likely that the EU will support UK’s accession to the Lugano Convention, as it would undoubtedly facilitate not only resolution of jurisdiction disputes but also recognition and enforcement of judgements (please see below).

 

 

Before 31 December 2020: choice-of-court agreements in favour of courts of the EU, including those of the UK, were regulated by the Brussels I Recast.

 

From 1 January 2021: the UK acceded to the Hague Convention of 2005 on Choice of Court Agreements, which has been in force in the EU since 1 October 2015. Thus, as of now, the choice-of-court agreements are governed by this Convention. However, the scope of application of this Convention is more limited than that of the Brussels I Recast – only exclusive choice-of-court agreements fall within the scope of the convention, and the convention should not be applied to asymmetric agreements (i.e. where agreements are made in favor of exclusive jurisdiction of several states). In addition, the UK and the EU disagree as to whether the convention should be applied to agreements made after 1 October 2015 (the UK’s position) or after 1 January 2021 (the EU’s position). As such, it is suggested to seek legal advice on enforceability of the concluded choice-of-court agreements as well as legal consultation on drafting new jurisdiction agreements.

 

 

Before 31 December 2020: the law applicable to contractual obligations was determined under the Rome I (Regulation No 593/2008), and the law applicable to non-contractual obligations was determined under the Rome II (Regulation No 864/2007).

 

From 1 January 2021: in accordance with the Withdrawal Agreement, the Rome I will continue to apply in respect of all agreements signed before 31 December 2020, and the Rome II will continue to apply in respect of all harmful events that occurred before 31 December 2020.

 

The law applicable to contracts signed after 31 December 2020 and harmful events that occurred after this date will be determined under the same rules – the application of the Rome I and Rome II in EU-27 has not change, and the UK has retained rules provided in these regulations.

 

Consequently, the position on governing law remains unchanged and courts of both the UK and EU-27 will continue to apply the same regime when deciding questions of governing law and continue to respect the parties' choice of law agreements in favour of English law of law of any EU Member State. However, considering that Rome I and Rome II have been retained by the UK by way of domestic regulation, a possibility of future changes in this regulation should be kept in mind.

 

 

Before 31 December 2020: judgements given in both the UK and EU-27 benefited from automatic recognition and enforcement regime provided in the Brussels I Recast. A judgment given in any Member State was enforced in the UK without any prior formal court procedures and vice versa. For example, a judgement rendered by the English court could be enforced in Lithuania by providing certain documents directly to the bailiff; a judgement creditor did not have to initiate proceedings for recognition and declaration of enforceability before the Lithuanian Court of Appeals (as it is required before enforcing a judgement rendered by a court of a third state).

 

From 1 January 2021: judgements given in civil matters commenced before 31 December 2020 will be automatically recognised and enforced under the rules established in the Brussels I Recast. As such, judgements given in proceedings commenced before 31 December 2020, will benefit from automatic recognition and enforcement despite being rendered in 2021 or later in both the UK and the EU. 

 

Judgements rendered in cases initialed subsequently:

 

In case of the UK acceding to the Lugano Convention, judgements falling outside the scope of the Hague Convention of 2005 on Choice of Court Agreements, would be recognised and authorised for enforcement under the simplified procedure established in the Lugano Convention.

 

The EU is currently considering possible accession to the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. If the UK and the EU joined the Convention, the judgments in the UK and the EU would be recognised in accordance with the harmonised rules laid down in the Convention.

 

 

Before 31 December 2020: decisions granting interim measures / freezing orders were automatically recognised and enforced in accordance with the Brussels I Recast.

 

From 1 January 2021:  decisions granting interim measures/freezing orders in proceedings commenced before 31 December 2020 will be recognised and enforced under the Brussels I Recast.

 

Decisions granting interim measures/freezing rendered in cases initiated subsequently will be recognised in accordance with domestic rules of a state in which enforcement is sought.

 

 

Before 31 December 2020: the service of judicial and extrajudicial documents in civil or commercial matters was governed by the Service Regulation (Regulation No. 1393/2007).

 

From 1 January 2021: service of documents received for the purposes of service before 31 December 2020 will continue to be governed by the Service Regulation.

 

Service of documents received after 31 December 2020 is possible in accordance with the 1965 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.

 

 

Before 31 December 2020: taking of evidence was governed by the Evidence Regulation (Regulation No. 1206/2001).

 

From 1 January 2021: requests received before 31 December 2020 will continue to be dealt with in accordance with the Evidence Regulation.

 

Requests received after 31 December 2020 will be dealt in accordance with the 1970 Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters.