Britain’s vote to leave the European Union has unleashed market gyrations and a flood of opinions. At a practical level, U.S. businesses that have expanded, or are considering expanding, into Europe want to know where to focus.
To work through the coming changes, focus on talent, trade, and taxes.
The EU has many complicated rules. Most important for this discussion are four special privileges: free movement of goods, persons, capital, and services across the entire EU — the internal market.
If you make something in an EU country, you have the right to sell it in any other EU country. The same right applies, with exceptions, to services. Citizens of EU countries have the right to live and work in any other EU country. (And EU companies have the right to establish a business in any other EU country.) EU companies and citizens can move money around the EU without restrictions.
If Britain simply ends its membership in the EU without any special agreement, its people and companies will lose all benefits of the internal market — they will be outsiders, not insiders. A U.S. investor in Britain would see changes in:
■Talent. You would not be able to recruit freely from across Europe, and would lose the ability to freely transfer your employees to and from Europe. Instead, you would need to justify a work permit for each employee. The existing talent pool of Europeans living in Britain may dry up.
■Trade. You would have to comply with customs rules and pay duties, and meet EU safety and other rules, to get your products from Britain into Europe. You would no longer have the right to provide services across Europe from a British base.
■Taxes. One important part of free movement of capital is the right to pay dividends freely across the EU If you own your European subsidiaries through a British company, you could face withholding taxes. Intercompany loans and other transactions could become more complicated.
EU companies have advantages in legal proceedings: a British judgment will be enforced anywhere in Europe with much less effort than a judgment from outside. This right could be lost.
There will be other changes. When EU laws and regulations no longer apply, Britain may adopt new ones, and no one can predict what the new rules will say.
Today, no one knows what will change for companies when Britain exits. The key points will be negotiated in a withdrawal agreement, which will take a while. Until then, the rules don’t change, but businesses will act on their expectations. British leaders of the “Leave” campaign now say that they want to keep access to the internal market, but stop letting people from around Europe come to Britain freely. EU leaders say that’s a non-starter.
Expect conflict, drama and wide swings in sentiment as the withdrawal negotiations begin and countries jockey for position. Keep your eye on talent, trade and taxes to assess the impact of Brexit on your business, plans, and opportunities.
David Jaffe is the principal of