Summary

In a webinar held on 18 July 2016, lawyers from Baker & McKenzie's London and Brussels offices considered the impact of Brexit on the Audio-Visual Sector, focusing on the implications on tax, trade, regulation and intellectual property. There is some uncertainty in all of the areas covered in this webinar, and this uncertainty will only end once the new relationship with the EU-27 and third parties has been agreed. However, in many instances the fall back position is known. It is important that businesses are aware of the possible outcomes of the Brexit negotiations and consider their options going forward. Businesses are encouraged to engage with the government departments and trade negotiators responsible for negotiating the new relationship with the EU-27 and third parties in order to get the industry's needs, wishes and concerns heard. The full webinar can be found on the Baker & McKenzie insight page, Brexit: What it means for your business, by clicking here.

Predicting the Future

  • From a contingency planning perspective, businesses need to consider the options available to the UK. These vary from membership of the EEA (in which the fundamental freedoms of the EU, contributions to the EU budget and compliance with some aspects of EU law is retained) to the fall back provisions of the WTO (under which the UK would no longer be obliged to abide by EU law or pay into the EU budget, but borders and tariffs would be re-imposed and the UK would no longer benefit from the EU's Free Trade Agreements ("FTAs") with third parties).
  • It is likely that the UK will opt for a FTA that falls somewhere between these two models. This could be loosely based on the FTAs already negotiated by the EU with Canada, Ukraine or South Korea. It is worth noting that these precedents contain very limited benefits, if any, for the AV sector.
  • In order to retain any level free movement of goods and services with the EU-27 significant compromise will be required on some of the key motivations of the Leave Campaign, including free movement of people and contributions to the EU budget.
  • Business lobbying will play a key part in shaping the new relationship with the EU-27 and third parties.

EU/ UK Regulatory landscape

  • There is some legal uncertainty about the regulatory landscape as this will depend on the negotiated relationship with the EU-27.
  • Direct EU and Member State funding may be lost and programmes such as the Creative Europe MEDIA Programme may become inaccessible.
  • The UK will remain a signatory of the European Convention on Transfrontier Television of the Council of Europe. As a result:
    • UK works will still be considered "European works" under the EU Audiovisual Media Services Directive 2010/13/EU (AVMSD);
    • The obligation for the UK to promote European works will also remain; and
    • If the EU imposes a quota on EU works being broadcast in Member States, an option currently under consideration, the UK will not be obliged to comply post-Brexit.
  • Licences may be required in some EU member states, particularly for some non-linear services such as video on demand.
  • The applicability of the Murphy judgment in a post-Brexit UK is unclear: there is likely to be greater flexibility regarding territorial restrictions on broadcasts, but it is unknown how the EU's Pay-TV and e-commerce investigations will apply.
  • The net-neutrality obligation will only apply when serving customers within the EU-27, though the UK may choose to adopt similar rules for internal customers.
  • The Draft Portability Regulation, under which subscribers must be allowed to access content whilst abroad, is likely to come into force before the UK has withdrawn from the EU. This benefit may then be lost post-Brexit.

Intellectual Property

  • CJEU case law on the scope and subsistence of copyright will continue to be relevant, at least in the short term. The law underlying these judgments has been implemented into UK law, so these cases will keep their precedential status until they are overruled by the Supreme Court or overriding legislation. Key areas that could change in the Brexit aftermath are the introduction of a private use exception or even a general fair use exception to mirror the US.
  • The effect of CJEU decisions on the competition law aspects of intellectual property may, however, be watered down substantially.
  • The principle of exhaustion is currently defined by reference to the EEA, so leaving the EU alone will not have any effect. If the UK does not stay in the EEA, it may gravitate towards the international definition of exhaustion for physical products. The position for services remains unclear.
  • Outside the EEA, UK rights clearance would not be transferable to the EU-27. However, there are already some pan-European agreements on rights clearance that include non-EU member states (e.g. music clearances) that would not be affected.

Tax

  • With the exception of VAT, tax is a national competence. The OECD is the main forum for setting the trend in this area and the UK will remain a key player.
  • Although there has been limited EU harmonisation on a legislative level in this area, the impact of CJEU case law should not be underestimated.
  • Suppliers registered for VAT in the UK under the EU's mini one-stop system ("MOSS") will need to register under MOSS in one of the EU-27 and obtain a separate UK VAT registration.
  • Post-Brexit, the EU-27 will be able to re-impose cross-border royalties and withhold taxes on IP rights. This is likely to have the biggest impact in Eastern Europe. The UK will fall back on international double-taxation agreements.
  • It is unclear if the new Chancellor's tax policy will mirror that of George Osborne. We have, however, been informed that there will be no emergency budget so there will be no clarification on tax policy until the Autumn statement.

Commercial Checklist

  • We advise clients to:
  • Review their high value strategic agreements that will remain in force beyond 2019 paying particular attention to the definitions, the ability to renegotiate in light of the new EU-27 relationship (once known) and the choice of law/jurisdiction provisions;
  • Carry out a supply chain diligence exercise;
  • Consider their corporate structure, in particular considering the optimum location for business in each of the possible relationship models; and
  • Engage with the trade negotiators and industry champions to ensure the industry's voice is heard.
  • A full checklist is available on the Baker & McKenzie Brexit website: click here.