October 31st is not just Halloween By Andrew Tottenham, Managing Director, Tottenham & Co October 10, 2019 at 2:45 am “Brexit” is a word that everyone is fed up hearing, so I will keep this article as short as possible. As most of you are aware, I am sure, the UK could find itself outside of the EU as of the 31st of October, without any arrangement (deal) covering the terms of the UK´s withdrawal – the Benn Act notwithstanding. This outcome would have significant consequences for the land-based and online gambling industry, so much so that the Department of Culture, Media and Sport, the UK Gambling Commission´s sponsoring Ministry, has issued an eight-point checklist for regulated UK-facing operators, the only ones that fall under its jurisdiction. But in the event of a no deal, UK operators with operations in or facing other EU jurisdictions could also find things getting very complicated. If the UK does leave without a deal it does mean just that – there is no agreement between the remaining EU countries and the UK on anything, and no transition to a smooth landing. In the event of “no deal”, one day the UK is in the EU, the next it is out completely. The UK has had 45 years of membership in the EU; its laws and regulations are necessarily intertwined with those of the EU. For example, the DCMS´s checklist covers four areas – employees, data, services and equipment; not surprisingly, this almost matches the four freedoms of the EU´s single market: goods, services, people, and capital. Employees who are UK citizens in Europe or European citizens in the UK may not have the right to continue to live and work where they are now. The DCMS’s checklist asks that employers make sure that all of their employees have the correct permissions to work and reside in the country where they currently are. The bureaucracy of obtaining work permits and permission to live in another country will come as quite a shock to many, since we are used to being able to live and work anywhere within the EU without the need to obtain government approval. For UK businesses, the pool of available talent will get considerably smaller. Travel will become a bit more complicated, with the UK becoming a third country as far as the EU is concerned and vice versa. Travel visas may be required for salespeople to visit overseas customers or a trade show, not to mention head office staff visiting overseas subsidiaries. Service providers, whether consultants such as myself or those providing payment mechanisms, might find that their agreements are null and void and they are not able to immediately provide those services across the UK/EU border. UK companies that provide online services into the EU may need to appoint an EU-based representative. Most EU countries do not demand that a company’s computer hardware or the corporate seat be in their particular country but do require that it be located somewhere within the European Economic Area (EEA). Online gambling companies that have taken up residence in Gibraltar or the UK will find that they are not recognised as being in the EEA and must cease providing services to EU countries until they move the company headquarters and its hardware. Data collected in one EU country and stored or processed in the UK might find it is not covered under existing contracts. Currently, the EU cloud is just that – data stored in the cloud can be on a server or servers anywhere in Europe. The UK is adamant that it will ensure compliance with the current requirements of GDPR and will not stop the flow of data from the UK to the EU, but whether the EU will allow data to continue to flow to the UK is unknown (I am hopeful that they will). If not, what does this mean for the cloud? In any event, contracts and end user agreements will need to be changed to cover data flowing into or out of the EU. Goods moving into or out of the EU will require additional paperwork and suffer from delays – good news for customs expediters, no doubt. Manufacturers exhibiting at UK trade shows will feel the burden of additional time and money expended in temporarily importing goods. The thorny issue of how value added tax (VAT) will be applied for service providers has not really been addressed as yet. Having worked for a number of US companies planning to invest in Europe, it is something that is easily misunderstood. At this time, those providing goods or services to VAT-registered business in another EU member state do not have to charge VAT on the sale. VAT in most member states is around 20% of the value of the invoice, so not something to be sneezed at. However, come November 1st it is not clear how this is to be handled for service providers. None of the government websites in the UK address this issue. VAT could become an issue for online gambling operators who contract for services from EU-based providers. It is a quirk of how VAT is applied that those companies who supply gambling services cannot reclaim VAT that they have had to pay out. If those services come from another EU country, they are not currently charged VAT. After October 31st will UK service providers have to charge VAT on any invoice to an EU-based customer? Will EU service providers have to charge VAT on services provided to UK-based companies? If the answer is yes, the cost of doing business for some gambling operators just got more expensive. For example, if the supplier of gambling software is in the EU and the operator is in the UK, the operator will be charged VAT by the supplier but will be unable to reclaim it from the UK authorities. I am hopeful that sense will prevail and the UK will not leave without a deal. But if it does, life will get a bit more complicated and expensive.