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Table of contents
  1. Tax
    1. Choosing a tax-friendly post-Brexit location - Germany
    2. Choosing a tax-friendly post-Brexit location - France
    3. Choosing a tax-friendly post-Brexit location - Luxembourg
    4. Potential impact of Brexit on the EU’s domestic tax laws
    5. Tax treatment of Brexit legal reorganisations and relocations
  2. Employment law and social security
  3. Immigration
    1. Luxembourg – contingency measures
    2. France – contingency measure
    3. The Netherlands – contingency measures
    4. Post-Brexit
    5. Germany – contingency measures

Employment law and social security

Business relocation

Brexit has major implications for companies carrying out regulated activities in the banking, finance and insurance sectors. Loss of EU member state status will remove UK-based operations from the European passporting system which allows regulated entities in one EU state to freely offer products and services across Europe.

Over the past three years, some UK-based businesses have already moved part or all of their operations to other EU jurisdictions, particularly those with key strategic financial and commercial centres. Brexit is also forcing continental European players to look carefully at reorganising their arrangements for continuing to do business in the UK, in some cases by establishing UK-regulated subsidiaries dedicated to serving the local market.

France, Germany, Luxembourg, Belgium and Ireland have emerged as the most likely Brexodus destinations for banking, finance and insurance companies. Recent changes in employment regulations reflect competition to attract UK businesses. In France, a major reform of employment law includes specific measures to attract foreign executives and changes to regulations for the banking sector. Germany is proving to be popular among relocating banks and their employees, as it offers ready accessibility for UK commuters and includes strong protection against dismissal. Luxembourg has introduced financial incentives targeting highly skilled and qualified workers, alongside tax breaks including tax exemption for relocation costs that benefit both employers and employees.

Working abroad

 

 

Freedom of movement for businesses and professionals to and from the UK – a key feature of the European single market – will end with Brexit. When and how it will end depends on whether the UK leaves the EU under the terms of the current withdrawal deal or with no deal.

Temporary assignments

Pre-Brexit, freedom of movement is guaranteed under Article 56 TFEU and by several EU Directives. Employees on secondment are entitled to stay affiliated to their home country’s social security system for up to two years. The UK applies the rules on the coordination of social security systems.

If Brexit happens under the current withdrawal deal, the existing rules will apply during a transition period until the end of 2020 and A1 certificates remain in force for their initial duration. If the UK leaves with no deal, the details will depend on whether the UK joins the EEA. If not, UK employers posting employees in the EU will have to pay social contributions in the host country and vice versa. Article 13 will no longer apply to employees working both in the UK and in another EU state. Agreements are likely to be required to guarantee the maintenance of employee rights.

Workers permanently outside their original EU member state 

Pre-Brexit, freedom of movement applies. There is no discrimination based on nationality between workers of member states regarding employment, compensation or other working conditions. Workers have the right to move freely in the EU for employment purposes, stay in a member state for the purpose of employment, and remain in a member state after having been employed there.

 

Post-Brexit, if the UK leaves under the withdrawal deal, the existing rules will apply up to the end of 2020. Article 45 TFEU will continue to apply to citizens who exercised their right before  the end of the transition period.

In a no-deal scenario, EU Regulation n°2019/500 (3/25/2019) provides contingency measures relating to social security coordination. The regulation is clearly intended to make sure that EU citizens will not be the victims of Brexit. For example, an employee who had an international career and has contributed to various EU pension schemes before Brexit should be able to aggregate their rights for the calculation of their pension allowance by the pension authorities of the member state where they decide to retire. EU member states have already introduced draft transition measures to secure the situation of UK citizens working and/or living in the EU on a permanent basis. In some cases these measures are subject to a condition of reciprocity with the UK.

European Works Councils

The industrial relations landscape looks set to change significantly after Brexit. Under EU Directives n°94/45/CE and n°2009/38/CE, companies or groups employing at least 1,000 employees in the EU with at least 150 employees in at least two different member states must implement a European works council (EWC). This will continue to apply during the current withdrawal deal transition period up to the end of 2020.

But if there is no deal, UK regulations will be amended so that no new request to set up EWCs can be made after the UK’s withdrawal. For EU companies with an EWC, the UK workforce will no longer be represented. This will have a huge impact on the industrial relations arrangements in companies with an EWC. Likely consequences include: resettlement of the EWC if the applicable legislation was UK law; amendment of the EWC’s scope, including assessing whether UK operations can be covered under the EWC Directive of 6 May 2009; and the impact on employee information and consultation requirements for cross-border questions.

Key contacts

Froger-Michon Caroline
Caroline Froger-Michon
Partner
Paris
T +33 1 47 38 43 03
Christopher Jordan
Dr. Christopher Jordan
Partner
Rechtsanwalt | Fachanwalt für Arbeitsrecht (Certified lawyer for labor and employment law) | Co-Head of the CMS Employment & Pensions Group
Cologne
T +49 221 7716 354

Expertise

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