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Brexit: 'No-deal' still looms

With less than two months until the end of the transition period set out in the EU/UK Withdrawal Agreement, a No-deal scenario is as relevant as ever. Below we outline the status of the negotiations and set forth the concrete steps which we recommend Danish exporters take to prepare for 1 January 2021.

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Brexit is coming, the only question is how hard it will hit

The UK officially ceased to be a member of the EU on 1 February 2020. Since then, the relationship between the EU and the UK has been regulated by the Withdrawal Agreement, which sets out terms for the citizens' rights, the financial settlement of obligations undertaken while the UK was a member of the EU, a protocol on Ireland and Northern Ireland and, finally, the transition period, which will lapse definitively on 31 December 2020. 

The UK and the EU have since then been negotiating vigorously; however, major issues remain unsolved regarding fishing rights, post-Brexit competition rules (so called 'state aid' rules) and enforcement mechanisms for the final deal.

If the parties fail to reach an agreement by 31 December 2020, trade between the EU and the UK will be subject to the 'Most Favoured Nation' tariffs and nationally adopted regulations governing goods entering or services offered in the parties' respective markets. 

We have in previous articles explored whether it is possible for the UK to seek a further extension of the transition period
(Brexit: The UK has denied asking for an extension, so what are the options now?).
Time has passed since then, and no significant steps towards seeking an extension have been taken. At this point in time we therefore deem an extension unlikely. As the negotiations have also failed to progress significantly, we continue to recommend that Danish companies prepare for a no-deal scenario.

In theory, the UK and EU negotiating teams have until 31 December 2020 to reach a deal. In reality, however, the negotiating teams must ensure sufficient time for any deal to be ratified by both the UK and the European parliaments. It was previously speculated that a deal would have had to in place before the EU Summit on 15 October 2020, which has now come and gone. It is now further speculated, that a deal would have to be struck by early November, but if Brexit has taught us anything, it seems to be that deadlines are meant to be broken and that much is possible in very little time.

Practical recommendations for Danish exporters and importers

In preparation for a no-deal scenario, we have below outlined our practical recommendations for measures which Danish exporters and importers as a minimum should consider before 1 January 2021.

Review contracts with UK touch points

We continue to urge exporters and importers to analyse their supply chains for touch points with the UK. This measure includes not only contracts with UK counterparts, but also awareness of whether their products or services pass through the UK in one way or the other.

We have previously described a number of contract clauses to be aware of, see our newsletter here: (Third Brexit Case Study: Review your UK supplier contracts).

Regarding employees, the requirements differ depending on whether the employee is simply visiting the UK for a short period while performing a service or whether the employee is moving to the UK to work for a long period of time. The UK government has published a guide on this, which can be found here.

Customs checks, controls, and other formalities

On 1 January 2021, the UK will no longer be part of the EU Customs Union, and customs formalities will therefore apply to goods leaving the EU customs territory to the UK (and vice versa). From this date, Danish companies exporting to (or importing from) the UK must ensure that they have an Economic Operators Registration and Identification number (an EORI number). 

Danish companies can obtain their EORI number from the Danish Tax Authority. We refer to their homepage.

Taxation and customs rules for import and export of goods (i.e. tariffs, VAT, and excise)

After 1 January 2021, WTO tariffs will likely apply to trade between the UK and the EU. The UK government has published the tariffs, which will enter into force on 1 January 2021, and which can be seen on their homepage.

Regarding VAT, goods exported from Denmark to the UK after 1 January 2021 will be VAT-exempt as would be the case for any other destination outside the EU. Likewise, goods imported from the UK to Denmark (or to the EU in general) will be subject to the VAT rate applicable to the same goods within the EU. 

Excise duties applicable to, for example, alcoholic beverages, tobacco etc., will after 1 January 2021 also be payable upon import to the EU from the UK.

Certificate of origin

After 1 January 2021, the Danish Tax Authority may require documentation for the origin of goods, proving in which country the goods have been produced or finished. The UK may also require certificates of origin upon import. For more information, we refer to the Danish Tax Authority's homepage.

Certificates of origin will be of special importance to businesses with supply chains that involve the movement of goods through the UK (and thereby outside the EU), as such goods may be deemed 'non-originating' goods under EU preferential trade arrangements and therefore potentially subject to customs duties. If businesses have supply chains which flow through the UK, we recommend that they are examined with care.

Certificates and authorizations of products

After 1 January 2021, all goods exported from the EU to the UK must comply with UK standards and rules. Although we expect that the standards and rules will be the same as before January 2021, the requirements may change going forward as the UK will be able to determine their own product requirements, which Danish exporters will have to comply with. 

CE marking

The UK has implemented the UKCA (UK Conformity Assessed) marking, which will take effect as of 1 January 2021. The UKCA is a new UK product marking, which will be used for goods being placed on the UK market. It covers most goods that previously required the CE marking. There will be a 1-year transition period, expiring on 1 January 2022, during which the CE marking (in most cases) will continue to be accepted.

If you have questions regarding the above or any other risks your company may be exposed to, we are happy to elaborate further.

Practice areas

Contact

Tyge Rasmussen
Partner (Aarhus)
Dir. +45 38 77 44 05
Mob. +45 61 63 54 48
Martin Bo Thøming
Senior Associate, Advokat (Aarhus)
Dir. +45 38 77 46 20
Mob. +45 61 63 54 75