Insights

The TMT industry post Brexit

How will Technology, Social Media and Telecoms (TMT) companies in Ireland be affected post Brexit?

The recent decision by the UK to leave the EU means that every part of the UK economy starts to grapple with the implications of our departure from the EU. There are also significant impacts for the Irish domestic economy and exporters.

The technology sector is however one area however that may benefit from the UK decision.  The well-established Irish technology sector with its global reputation, access to talent, pro-business environment and common law system means that Ireland will no doubt attract additional inward investment over time as companies focus on their future location, investment and expansion decisions.

Factors which companies may well focus on in those decisions over the next number of weeks and months include the following.

 

Access to talent

One of the most critical concern for clients in the TMT industry, particularly those in the technology sector, is the potential restrictions on the freedom of movement resulting from Brexit limiting the pool of talent available to, amongst others, tech start-ups, as well as the high-tech software industry.  This could have a significant effect on London’s position as a hub for digital start-ups.  

It may also mean that US companies increasingly seek to transfer technology-oriented work to countries with employees who possess the required skillset rather than source these activities in the UK.  Ireland is well positioned.

 

Regulation and intellectual property

EU legislative framework

The telecoms and media sectors in the UK and Europe are highly regulated, with much of this regulation stemming from European Directives seeking to create a unified digital single market.

This wide-ranging framework of EU legislation governs a number of TMT sectors including fixed and wireless telecoms, internet, broadcasting and transmission services.  

Decisions will need to be made to determine which elements of this framework to keep and which elements to revise for the UK TMT industry. In practice, there are likely to be few changes in the short term, but going forwards this framework will not have the underlying basis of EU regulation and control.  

Various concerns may arise as the control of roaming charges provided by the 2015 EU Roaming and Open Internet Regulation would cease to apply to the UK though may be enshrined into UK law.  

 

Digital Single Market

UK-based digital companies may not be able to benefit from the greater ease with which e-commerce can be conducted across the EU.  

More broadly, the impact of Brexit on e-commerce in the UK would largely depend on the exit terms negotiated between the UK and the EU but restrictions on the free movement of goods and services could have just as much impact on e-commerce as “bricks and mortar” businesses. 

 

Net Neutrality

Under EU law, the blocking or throttling of traffic by ISPs is prohibited, subject to reasonable traffic management. In some Brexit scenarios, EU law on net neutrality could cease to apply in the UK, allowing the UK government to adopt different rules. 

While this outcome is not expected, such uncertainty does not arise in locating in Ireland.

We are already seeing telco service providers assess their data centre strategies. Many data centre operators support their financial services clients through location of data centres in London and Frankfurt and other financial hubs but with a desire to have co-location data centres in the EU, we are seeing interest in Ireland as an alternative to the UK.  

 

Intellectual property 

UK trade mark law currently derives from EU legislation and the UK’s obligation to adopt and comply with that legislation will cease on a Brexit. Trade mark law may diverge over time as UK specific case law develops.

Pan-EU rights such as EU Trade Marks and EU Registered Designs will cease to be effective in the UK on Brexit and the UK will need to legislate for conversion of these EU rights to national rights. 

The grant of patents is unlikely to be significantly affected given that the European Patent Office is not an EU institution.  As a result, the prosecution of European patents should be unaffected by Brexit.

 

Tax and trade

VAT

As a supposedly fully harmonised tax that is currently governed by the VAT Directives and Regulations, UK VAT could be materially affected.  

Among other things, changes to UK VAT law will be needed to reflect the fact that trade with EU Member States will no longer involve intra-EU transactions, with the corresponding reporting obligations, but will become exports and imports, to be accounted for, and evidenced, as such.  

TMT businesses currently registered under the EU Mini One-Stop Shop will need to switch to the “non-EU” equivalent, and TMT businesses seeking VAT refunds from EU Member States will need to use the 13th Directive refund process rather than the electronic intra-EU refund scheme.  

UK direct tax is less likely to be affected by the UK’s leaving the EU than many other areas as it is not expressly dealt with by EU Treaties. Social security is worth mentioning as there could be an impact for expats in the UK that mean they are subject to two systems going forward.

The UK will no doubt realign itself to be competitive in the new paradigm with perhaps a reduction in its corporate tax rate, a repositioning of its ability to provide financial assistance to attract projects without having the impact of the EU state aid rules.  Other countries will also be attentive to attracting inward investment.  However Ireland’s now unique positioning in the EU leaves it well placed to compete.

 

Summary

The impact for the Irish economy is being evaluated locally and globally by business. The positive Irish centric environment and infrastructure that has developed for technology companies over the last 50 years and more recently for the newer forms of technology including social media, should result in attracting additional incremental investment into Ireland and counterbalance some of the negatives for Ireland.

First published in the Silicon Valley Gazette 

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