It appears unlikely that there will be a comprehensive agreement between the EU and UK in 2020 which will cover many issues in relation to services. The most that is likely, seems to be a “skinny” agreement in relation to trade in goods and some limited aspects of services. A more extensive agreement would require prolonged negotiation and would require ratification in member state parliaments and some regional parliaments. Such agreements may follow at a later date.
If United Kingdom exits the EU at the end of 2020 with an agreement in relation to trade in goods only , then one would expect that the EU and UK would endeavour to minimise disruption to the extent possible in other areas. If the United Kingdom exits without an agreement, relations may be more fraught and disputed and there may be less appetite for comprehensive mitigation and minimisation of disruption. Even in the event of a trade dispute and no deal at all, some elements of mitigation would be likely.
Under both the scenario of a trade in goods agreement and a no deal exit , the present strong EU treaty freedoms to establish a presence, invest, sell cross-border and trade in services will be no longer available. In their place (and possibly only in the longer term )would be at best, very general rights which would be neither enforceable in court nor by strong EU agencies. The replacement rights under any future EU UK agreement would be in more general and weaker terms and would not be enforceable by individuals. They would be enforceable between the EU Commission and UK state only.
Before the former Brexit risk dates in 2019, UK published a significant number of temporary facilitations under its “no deal” notes. The EU published significantly fewer facilitations, claiming to do so only where it was strictly necessary to protect its interests. Ireland published some planning notes and passed legislation dealing with about twenty distinct problematic issues.
The disruption in services is more difficult to predict than in the case of goods. There are many specific sectors and cases, where the falling away of particular laws will have immediate severe consequences. For example, in financial services, it may be necessary for UK institutions to establish a presence in the EU in order to continue to provide services. There are many other areas where the effect might be less dramatic.
The right to provide services is one of the four fundamental freedoms in the EU treaties. Services agreements. It is directly enforceable in national courts and its principles as developed by the European Court of the last 50 years must be applied by national courts to overrule any inconsistent national rules or practices.
In addition to enforcement by the courts, the EU commission has sought to give real effect to the freedom to provide and receive services by enforcement action against states and by initiatives for legislation that give real effect to the rights. Both in relation to court action and Commission action, the permitted exceptions to the rights and narrowly defined. States may put in place obstacles only where they are strictly and demonstrably necessary and no wider than necessary to achieve legitimate policy objectives. In practice, this has meant that very few limitations, restrictions and conditions may be placed on the right and freedom to provide and receive services.
There is a comprehensive Services Directive which provides comprehensive specific rights to provide services throughout the EU. It applies to almost all types of services that save some limited categories of governmental activities. It emphasises the right of the service provider to provide the service and the right of the recipient to receive and avail of the service.
The directive placed positive duties on states to review and remove barriers to the provision of services. Obstacles and hindrances to trade in services must be removed. Any remaining restrictions must be strictly and demonstrably necessary. There is an onus on the host state to prove the strict necessity.
States must provide a “single point of contact” electronic portal to deal with and assist queries by service providers in exercising the rights concerned. The host state must accord full and effective equal treatment. This includes the full social and tax advantages available to domestic providers.
The Services Directive operates in tandem with the Qualifications Directive which takes a similar approach. Generally, qualifications must be recognised. Where there is justification for non-recognition, there must be provision for recognition by way of further training and/ or aptitude testing.
There is a right both to provide services cross-border and a right to establish a presence in another state by way of a branch or subsidiary in order to provide services in the host state. The right to establish is provided for under the EU treaties as a key freedom which the European courts have gone far to uphold.
Even fewer limitations are permissible in respect of the right to provide services cross border, where the services are provided in the trader’s capacity as a home state provider. In this case, there is no requirement for establishment or infrastructure in the host state.
International trade agreements in the area of services are much less developed than in the case of goods. The 1995 General Agreement on Trade in Services (GATS) was part of the last major update of WTO rules. It was the first multilateral (multi-state) agreement on trade in services. Although it follows the broad principles of the agreement in relation to goods (GATT) it is much less comprehensive and much more limited in its scope.
The WTO GATS would represent the fallback position in respect of trade in services in the event of a no deal Brexit. As in the case of goods, a longer term more comprehensive agreement in relation to services would be likely to build on GATS principles. While significant development of the basic default “third country” position is likely in a longer-term agreement, any likely agreement will be limited in scope, subject to many significant exceptions and will not be directly enforceable by traders.
The WTO agreement and any trade agreement which builds on it will provide for the most-favoured-nation and non-discrimination principles that are found in the General Agreement in relation to trade in goods. However, unlike that agreement, the principles only apply in the narrow areas in which the EU and UK respectively have committed to liberalise trade in services in their schedules filed with the WTO. Even within those schedules, exceptions suspensions and withdrawals are provided for, although in some cases a countermeasure may be permitted in consequence by an affected state.
Services schedules cover 155 different categories of services which are defined in the GATS agreements. There are four modes of supply namely, supply cross-border, consumption abroad, commercial presence and temporary business travel. Under the WTO agreement, the EU has listed the respective categories of services and the modes of supply and the extent to which it liberalises trade in the area concerned.
Under a longer-term services agreement, it might be expected that a greater number of categories and modes of supply might be liberalised and to a greater extent between the EU and UK. The positive list approach sets out the sectors which are liberalised. The more ambitious negative list approach sets out the excluded sectors. The EU and UK services schedules are available on wto.org.
In practice, recent trade agreements build substantially on the WTO agreement but are still very far short of the existing EU freedoms in relation to services. They may permit establishment in some sectors. The provision of services cross-border will typically be limited. There is no harmonised regulation of service providers. There are unlikely to be extensive provisions regarding the recognition of qualifications. There is more likely to be procedures and objectives for recognition
The EU Canada agreement (CETA), frequently held out as a model for the EU UK trade talks, takes the negative list approach. However, there are significant exclusions. In particular financial services, transport and audio-visual areas are very restricted. As is common, rights are reserved to reintroduce restrictions in some cases, such as s in the area of medical products and pharmaceuticals. The agreement has a framework for qualification recognition and guidelines for the negotiation of specific agreements.
As in the case of trade in goods under WTO terms and under most free-trade agreements, breaches are enforced at the state to state level only. Individual traders who have suffered loss by reason of breach of the rules have no specific remedy. All that may happen and only after an arbitration process at best is that state (or the EU as a single trading block) may be permitted to take countermeasures against the other state to offset the advantage obtained by the breach.
The Common Travel Area is an understanding or convention between the United Kingdom, Ireland, the Isle of Man and the Channel Islands. It does not have the force of law nor is it formally embodied in an international agreement. The Common Travel Area is recognised in EU legislation including the Withdrawal Agreement by way of an exception to the general principles of equal treatment that would be otherwise required to be afforded to other EU states.
In May 2021 the United Kingdom and Ireland signed a Memorandum of Understanding in relation to the scope of the Common Travel Area. This has fleshed out many important aspects of the arrangement which had been understood to greater and lesser extents but had not been explicitly documented.
“People” are usually one of the most important considerations in relation to services. UK immigration laws will apply to the EU 26 citizens after the effective date of Brexit. Citizens of Ireland will continue to have a right to travel to work in the United Kingdom and have immediate settled status. Equally, United Kingdom citizens in the Republic of Ireland will have the same rights to travel, work and have immediate settled status.
The Common Travel Area is of immense practical importance in providing services and trading with the United Kingdom. Free movement of people is the most important issue in most services sectors. The Common Travel Area effectively gives Irish citizens’ rights almost as strong as those existing while the United Kingdom was part of the European Union. It creates the right to come to work in the other state or territory as an employee or as a self-employed person.
The CTA arrangements provide for free movement of persons without visas and the right to reside. The right to immediate settle status means that Irish citizens would enjoy extensive civil rights in the UK at the moment of arrival. In the case of the EU and other third countries, such rights might only be acquired after five years of residence under the immigration rules.
Citizens of Ireland and the UK are to have access to emergency and routine health services, access to education, employment and training supports on the same basis as citizens of the host country and on the same terms. They have the rights to vote in parliamentary and other elections.
The Irish and UK government signed a Social Security Convention in 2019 reinstating most of the EU rules providing for the accumulation of contributions and payment of benefits. Employees are subject to the social security system of one state in accordance with the relevant rules.
A priority in the trade agreement in 2020 is the agreement of terms for recognition of equivalence whereby certain categories of UK financial services providers would be recognised and permitted to some extent, but in no way across the board, as permitted to continue to provide their services or some of them into the EU.
Similar considerations apply in other sectors such as passenger and road transport, where there are EU wide rules allowing full freedom to do business across the EU. On a smaller scale, in certain professions and occupations, there is automatic EU wide recognition of qualifications without adjustment. The position of people whose existing qualifications have been recognised will be preserved. New automatic recognition may not be available.
The issues in services sector differ from sector to sector. The vast majority of services are not regulated at all. The United Kingdom has a tradition of being very open to international trade including in particular ,trade in services. This is likely to continue. However, the existing strong EU treaty rights to establish trade and provide services are removed after Brexit. Over time barriers to trade whether explicit or arising in effect (e.g. an arbitrary or strictly unnecessary requirement, such for example as to have a local office or use local labour) may emerge, which cannot be countered using the EU rights in place at present.
While in the longer term there is likely to be an EU UK agreement in relation to services it is unlikely to apply to all areas which services are provided and to all types of services. It may, provide at best, a precarious right which can be withdrawn. It is likely to be expressed in very general terms and to be enforceable only on state to state basis by the EU Commission and UK authorities.
Traders who are adversely affected by explicit barriers or more likely invidious hidden barriers to trade, will have to direct right to compensation or remedy. A remedy usually lies by way of the state (here the EU) applying countermeasures against the other state (the UK) or vice versa only.
Most arrangements in trade are reciprocal. Therefore, where UK traders are precluded from trading establishing themselves and providing services across border into the EU market, it is likely that the same will apply in respect of EU traders undertaking the same services into or in the UK market.
In many cases, the Common Travel Area as well as the traditional alignment of regulation and willingness of the Irish and UK authorities to recognise each other’s regulation of qualification may mean that the position for Irish traders in the UK and UK traders in Ireland is better than in respect of other EU states.
In some areas, there are single EU wide regulations or principles of regulation. Many have been developed within the last two decades. In those areas, it is very unlikely that any trade agreement will replicate these existing rights. Accordingly, it may be necessary to establish a presence in the other jurisdiction.
It may be expected that the UK will apply on a reciprocal basis, the same rules and limitations to which it is subject with respect to the European Union. Generally, it might be expected that Irish established providers would lose corresponding access to the UK market in cases where UK established providers would lose access to the EU market. It might be that the UK offers some unilateral concessions for a period even if the EU does not afford equivalent concessions.
The most prominent example of a single EU wide basis of regulation is in financial services. This covers the full range of wholesale and retail banking services, insurance, payments, investment services, and funds. The service providers can provide their services cross-border using their ‘passporting” rights.
The host state undertakes the basic or “prudential” regulation and the entity must comply with the consumer protection rules of the host state. Many / most of the consumer protection rules have themselves been harmonised.
There are similar single sets of regulations across the transport industries, which of their nature are pan-European. This includes passenger and freight transport by road sea and air. The regulation extends not only to the licensing of the entities which provide services EU wide but extends to the regulation of the sector including the qualifications of individuals in the sector concerned.
Similar pan European regulations apply in the energy, communications and broadcasting sectors. The EU has been central in the regulation of services which were formerly state monopolies. In this context, the all-island energy market was established. It has been specifically preserved under the Northern Ireland protocol.
The EU has been central to providing common rules in relation to digital (information society) services. The essence of these services is that they are provided from one state throughout the EU. The general principle is that the home state rules only apply. There is a limited extent only, to which the host state can apply additional restrictions and conditions. There are harmonised EU wide conditions in relation to the provision of information customer and service rights.
There are many sectors where the basic product standards are in EU wide common terms. Although the provision of services in relation to the products concerned are not regulated, the common standards effectively mean that the provision of services in relation to them is greatly facilitated. There are common standards for persons performing particular roles such as for example in the construction and chemicals sector
Agriculture and food are intensely regulated under common EU regulatory rules. Although most aspects of the sectors are not licensed as such, standards for doing business are in common terms and specific roles and some cases specific authorisations are in common terms. This facilitates the provision of services in conjunction with the supply of products.
The EU has been active in legislating for the recognition of qualifications. This is necessary to give effect to the basic treaty freedom to work and provide services throughout the EU.
In some areas, there had been legislation providing for mutual recognition of qualifications for many years. A general Qualifications Directive was introduced in 2005 to provide a framework for recognition of qualifications. It applies to any profession or occupation which is regulated by law or under equivalent rules.
The EU Qualifications Directive applies to 160 listed activities in the commercial craft and industrial sphere. The directive lays down rules for professionals who want to establish themselves as an employed or self-employed person on a permanent basis in a country where they didn’t obtain their professional qualification.
In some areas, in particular, the medical and health professions veterinarians and architects there is effectively a single scheme of regulation with automatic recognition throughout Europe. In these cases, there are common standards on the underlying education and experience that are required.
In some areas such as law, there is no automatic recognition but there is a form of automatic recognition, such as recognition of what is effectively a “European” lawyer status with some of the benefits of host state qualification. As in other areas, there are rules facilitating the acquisition of host state recognition on the basis of training and/or additional aptitude testing.
In other cases, if there is no substantial difference between the home state and host states requirements, the former must be recognised. If there is a substantial difference, the opportunity must be given to make up the shortfall. There are exceptions for specific areas.
It is generally permissible to practice under the home state title as such.in providing services cross-border on a temporary or occasional basis in most sectors. It must be clear that the services being provided in a capacity as a home state provider. The provider must comply with the consumer protection rules of the host state. It may be required that the regulatory authority is notified in advance.
In the UK and Irish governments in a memorandum of understanding in May 2019 relation to the Common Travel Area agreed to instruct their qualifications authorities to seek to maintain arrangements for recognition of qualifications after Brexit on much the same basis as at present insofar as possible.
In the handful of areas that were subject to statutory licensing before EEC entry in 1973, in particular in the medical professions Irish and UK legislation expressly recognised qualifications in the other jurisdiction as sufficient for domestic purposes.
In other areas, there has been very close cooperation between the regulators and educational bodies which recognise each other’s qualifications on a liberal basis, for example in the legal area. Some of the accountancy bodies are organised on an all-Ireland or Ireland and UK wide basis so that their qualifications are close to identical and easily or automatically recognised in the other jurisdiction.
The issues below in relation to immigration apply principally to Irish businesses insofar as they employ EU 26 nationals who travel to or enter the United Kingdom. EU 26 nationals form a significant proportion of the Republic of Ireland’s workforce.
There are special provisions for cross-border workers. They are treated the same as migrants in the other territory under the EU UK Withdrawal Agreement. Therefore, the Republic of Ireland resident EU 26 employees who work in Northern Ireland or Great Britain will be entitled to apply for settled status on the same terms as EU migrants resident in the United Kingdom. The withdrawal agreement gives them rights that are protected under EU law which cannot be undone by domestic UK law.
The UK intends to introduce a uniform immigration system applying to all third-country nationals including EU 26 (non-UK non-Irish) nationals. It is not clear to what extent preference might be granted to EU 26 citizens in the context of the new trade agreement in the medium to longer term.
Generally ,trade agreements do not grant rights of residence or anything remotely approaching rights of residence. They do allow for rights to be present for business purposes, ancillary to exercising other rights, usually on a restrictive basis.
The position of existing migrants in the UK prior to the effective date of exit is preserved. They may continue to work lawfully and ultimately achieve settled status after five years of qualifying lawful residence. The settlement scheme allows them to establish the rights under a simple, minimal cost administration system. This is very much in contrast to the burdensome nature of standard immigration proposals. The rights of existing migrants and cross-border workers from the EU (including the Republic of Ireland EU 26 employees) are enforceable in the UK in the same way as under EU law.
The UK announced temporary liberalisation of rules for new EU 26 employees entering the UK for a period after Brexit last year when Brexit was imminent. It is possible that in the event of either a no deal exit or an exit without any agreement in relation to people, that the UK might afford similar unilateral mitigations in respect of EU 26 employees for a limited period.
The UK no deal notes contemplated a three-year leave to remain visa to facilitate EU 26 employees. The European temporary leave to remain was to be simple and free. The application could be made after arrival. It was said that there would be some visible changes at the border with tougher rules for criminals. Otherwise, EU citizens were to be able to cross the UK border as before Brexit for a temporary period.
The European temporary leave to remain scheme allowed for 36 months’ leave to remain so as to provide greater confidence and certainty before a new system was introduced. It was intended to apply until the end of 2020, if the UK had left the EU on 31 January 2020 without a deal. The full existing third-party immigration system would not apply to EU citizens until the temporary period expired.
The UK government proposes to introduce a new Australian style points-based immigration system from January 2021. It has established an independent Migration Advisory Committee. It indicates it will introduce a new fair immigration system that prioritises skilled people who can contribute to the UK rather than one based on where they come from. Its proposals were published in February 2020.
Where an individual holds a European leave to remain and does not meet the required criteria under new immigration requirements or otherwise have a right stay in the UK, they would be expected to leave the UK when the European leave to remain expires. When an EU citizen is granted permission to stay under the new points-based immigration system he or she has a route to settled status (indefinite leave to remain). The 36-month European leave to remain would count towards the qualifying residence period for settlement.
Most sectors and jobs are not specifically regulated in Ireland United Kingdom and most EU countries. This applies both at the level of the enterprise or business providing the particular service and at the level of the individuals who work in it. In these cases, there may be little in the way of formal obstacles to the exercise of the business or occupation in the United Kingdom (or vice versa for UK providers) after Brexit.
Although the EU has made significant attempts to liberalise and enhance the single market in services, host state regulation is the norm in most sectors. For reasons of culture, language, and history, it can be difficult for providers from other states to provide services in certain services sectors. In these cases, the difference between the position pose Brexit and after Brexit will not be dramatic.
In practice, most states provide a much more liberal position than those set out in their WTO schedules. States and their relevant authorities often apply more favourable rules. Where there is specific regulation of qualifications, the real issue is the ease of recognition.
For cultural, historical and political reasons, the Irish and UK markets in many sectors, have strong links. In the handful of areas that were regulated prior to both Ireland and the UK joining the EU, such in the medicine veterinary pharmaceutical and dentistry the relevant Irish and UK legislation effectively recognised qualifications of the other state.
In the field of accounting, several of the regulatory bodies have very close links to their UK equivalents. The accounting standards are very similar so that there is very strong effective freedom of movement notwithstanding the qualifications are not automatically recognised. In the area of law solicitors and barristers may practice the other jurisdiction with minimal if any additional qualification requirements.
Even in the above cases it is necessary to be regulated in the host state in order to practice in business there. The recognition of qualifications will, for example, lead to entry on the roll of admitted professionals. However, in common with any other provider in the state concerned, it would be necessary to obtain a practising certificate, comply with insurance requirements. be a member of the relevant professional body and comply with the local conduct rules
Outside of areas which are specifically regulated, the Irish and UK labour market has been traditionally one. This involved almost entirely Irish workers travelling to the United Kingdom. However, in recent decades there are almost as many United Kingdom citizens living in Ireland as there are Irish citizens living in the United Kingdom.
The European Union has limited powers in relation to direct taxation. Direct taxation refers to taxes on income tax corporation tax and capital gains tax. The development of tax rules internationally takes place within the OECD. Although this is an intergovernmental organisation it does not have law-making functions. It shapes standards on double taxation and cooperation and does not apply mandatory rules.
Cross-border tax issues are set under double taxation agreements and information sharing agreements between the countries concerned. Ireland has double tax agreements with the United Kingdom and the EU countries. The double taxation agreement can override domestic legislation. Double taxation agreements are in broadly similar terms, but they differ depending on when they were negotiated and particular issues between the states of the time.
The European Union does take some measures in the area of tax. Tax measures require unanimity.Some EU legislation is designed to ensure that EU wide groups and entities in which there is a significant shareholding function without discriminatory rules in relation to tax.
For example, EU rules require payments of interest, royalty, and dividends between certain connected or closely related companies without withholding tax. Most but not all such exemptions are already provided for under the double taxation agreements concerned.
There are tax relieving rules in both the United Kingdom and Ireland which allow for mergers restructuring and reorganisation of companies or groups of companies on a tax neutral basis. Originally the legislation only applied within groups for members who were resident in the home state. The effect of EU general treaty freedoms required legislation to extend the reliefs to EU wide groups. Otherwise, they could not restructure on a tax neutral basis which would interfere with fundamental EU freedoms to establish and do business throughout the EU.
The UK will cease to be an EU/EEA (EU plus three EFTA members) state for the purpose of many of these reliefs. The so-called Brexit Omnibus Act passed in March 2019 was intended to reinstate most of these exemptions.
The issue of the availability of the restructuring reliefs may be critical as some businesses may need to reorganise and restructure themselves before Brexit . The fundamental EU freedoms to re-establish in another jurisdiction all or part of a business will cease after the end of the transition period so that is then necessary to rely on Irish or UK domestic legislation as the particular circumstances require to avoid charges for taxes that would otherwise arise.
The EU has an agenda to modernise corporation tax. Many of the proposals are based on OECD measures and have been implemented in Ireland over the last five years. There is the notorious controversial proposal by the EU for a common consolidated corporate tax base. This would involve common corporation tax rules for companies in the EU with an apportionment of profits between the member states based on a formula based on the respective inputs of labour, capital, and sales in the respective member states. There is a proposal for a digital sales tax with a broadly similar basis of apportionment.
These proposals were strongly resisted by Ireland UK and several other countries over the last number of years. There is a perception that Ireland will come under increasing pressure to agree to these measures or similar measures in the context of the reform of the taxation of large multinationals. The tech giants pay tax on their income /profits in their place of establishment but may pay little or no tax in the countries in which they do business.
The EU has used state aid powers i.e. its control over subsidies and benefits given by governments and governmental bodies to private industry, in relation to individual tax rulings and measures. Formerly Ireland had an export sales tax relief (0%) and a special manufacturing, Shannon and IFSC rate of tax (10%) which was permitted under state aid rules.
When these state aid waivers were due to be withdrawn, Ireland reduced its general rate of corporation tax on trading profits from 40% to 12.5% between 1996 and 2003. As a general taxation measure, it was not subject to the state aid rules.
In the investigation of Apple by the EU Commission certain individual tax rulings which benefited Apple over and above the general rate of tax were characterised as state aid with the resulting tax bill to Apple of over €10 billion. The State and Apple have appealed the EU Commission determination to the European courts.
The UK Conservative government progressively reduced its corporation tax to 19% over several budgets by 2018. It had planned to reduce the rate of 15%. However, this proposal has been shelved by reason of Brexit and the need to maintain tax revenue. The constituency which supported Boris Johnson in the December 2019 general election is perceived not to be favourable to further corporation tax reductions.
Northern Ireland was given the power to reduce the corporation tax payable for NI established companies in 2015. It had been intended to reduce this rate to 12.5% so that and NI could compete with the Republic of Ireland for foreign direct investment on the same terms. In January 2020, the Northern Ireland Executive confirmed that it was not pursuing a lower tax rate for fiscal reasons.