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In or out? Ready or not? The United Kingdom EU Referendum How likely is it that the UK will vote to leave the EU (‘Brexit’)?The outcome of the referendum is uncertain and any predictions should be treated with caution. The result will in part depend on negotiations that the UK government is preparing to undertake to seek reforms within the EU before the referendum is held. The perceived success or failure of these negotiations may affect

the campaign stances of politicians, the media and other opinion formers. Given this uncertainty, businesses will need to consider the referendum and Brexit, in managing risks and planning for the future.

Key uncertainties:

> the form that Brexit would take > whether or not, or the extent to which, transitional or grandfathering provisions might protect existing arrangements with the EU

> what regulatory or deregulatory measures the UK might introduce once it was outside the EU/EEA

> what new regulatory, fiscal or trade measures the EU might introduce

Reasonable assumptions: > that there would be a period of at least two years between the date of the referendum and the effective date of Brexit

> as the terms of Brexit became clearer, it might be possible to take steps to reduce the adverse effects of, and assess any opportunities presented by, Brexit

> that although areas of legal uncertainty and complexity are likely, an orderly exit would be achieved and the UK government would take measures to prevent significant legislative or regulatory vacuums arising at the point of exit

What does the referendum mean for you?

Freedom of movement (capital, people, goods) Employment law | Taxation | Financial services regulation Capital markets | Competition regulation and consumer policy | Intellectual property | Data protection | Energy Environment | Pharmaceuticals | Criminal and civil judicial cooperation | Agriculture and fisheries | Trade policy

Some risk assessment considerations for businesses What is the impact of the referendum?

> Will we be called upon to describe the potential impact of Brexit on our business, eg in our annual report or in a prospectus and, if so, how will we articulate it?

> Will uncertainties over possible Brexit impact joint ventures, acquisitions or disposals that we might be considering?

> Are there steps we should be taking to mitigate the risk of Brexit? > Do contracts that we are entering into need to cater for the possibility of Brexit?

> Should we focus future investment in other parts of the EU rather than the UK?

> How will the capital markets be affected?Can we measure the impact of Brexit?

> If Brexit occurs, will there be a change in the way our business/sector is regulated in the UK? Will there be a change in the way it is regulated elsewhere?

> How much of our business involves movement of goods between the UK and the rest of the EU and vice versa? What kinds of goods?

> How dependent is the business on the ability to move employees from the UK to other parts of the EU and vice versa?

> How dependent is the business on the ability to transfer data from the UK to other parts of the EU or vice versa?

> Are any of our existing contracts likely to be affected by Brexit? eg force majeure provisions that could be triggered by Brexit.

> Do we have suppliers, customers or other contractual counterparties whose businesses will be severely affected by Brexit?

> Do we supply parts to be inputted into products being produced in other member states? If so will Brexit impact upon the ease and cost of distributing our goods to the end producer?

> Do services we provide depend on the existence of a passport and is the UK the home state for passporting purposes?

In or out?

Understanding the landscape

Plan to avoid risks

Identify opportunities

UK Exports to other EU member states

Imports from other EU member states

Goods 2013 £155 bn £221 bn (45% of UK total imports)

Services 2012

Services worth £72 billion

Services worth £60 billion

People 2.3m UK citizens live elsewhere in EU

2.7m non-UK EU citizens living in UK

The UK is a net contributor to the EU and trade flows from other EU member states to the UK outweigh its trade to EU states.

EU Economy UK share

People 503 million 63.4 million

2014 GDP £18.5 trillion £3 trillion

Fundamental freedoms underpinning the EU’s single market:

> free movement of goods: goods may be traded between all member states without customs duties or hindrance from national regulations (eg obligations to appoint a representative, national price controls and reimbursements, bans on specific products or substances, packaging or labelling of goods requirements

> free movement of services and of establishment: EU companies have the freedom to establish themselves in other member states and along with individuals, have the freedom to provide services on the territory of other EU member states

> free movement of citizens and workers: allows nationals of a member state to accept offers of employment in, move freely to and stay in another member state for the duration of their employment and beyond. It prevents discrimination on the grounds of nationality, professional qualification requirements or residence

> free movement of capital: irrespective of the nationality of the beneficiaries and the origin, all capital and currency transfers, once they are in free circulation in the internal market, enjoy the free movement of capital

What might a UK exit look like?

Potential post-exit models for the UK’s relationship with the EU > EEA + EFTA membership: like Norway and Iceland, the UK would have membership of the European Economic Area and the European Free Trade Association. This would allow the UK to retain access to the internal market and EU businesses to have access to the UK. The UK would have to contribute to the EU budget, maintain and adopt EU laws in order to take advantage of the internal market and would have to continue to permit free movement of persons, freedom to provide services and freedom of establishment from other EEA states. The UK would participate formally in EU legislative processes. It would not participate in the EU common agricultural and fisheries policies, the common transport and energy policies, or in the common commercial policies. Neither would the UK be part of the EU’s common foreign and security policy.

> Bilateral agreements + EFTA: like Switzerland, the UK would agree sector-by-sector treaties with the EU and free trade agreements with EFTA countries. Switzerland currently has over 120 separate bilateral agreements with the EU. The UK would not have full access to the internal market as access is given on a case by case basis. UK exports to, and investments in, the EU would have to comply with EU laws. The UK would not otherwise be bound to transpose EU internal market legislation into UK law and would have freedom to conclude trade agreements with third countries.

> Customs union: Turkey has a customs union with the EU, which is limited to trade in industrial products and certain agricultural products and does not apply to services. A customs union for goods means that goods can be exported to the EU without the need to comply customs restrictions or tariffs. Under this model,

If the UK votes in favour of Brexit, the form of the UK’s future relationship with the EU would have to be negotiated. The impact of Brexit on businesses will remain uncertain until the post-Brexit model is known.

the UK would not be obliged to contribute to the EU budget and would have freedom to regulate its own financial services sector, but would have to comply with significant portions of the EU trade policy and would lose its current right to provide financial and professional services on equal terms with EU members unless it could negotiate preferential access to the internal services market.

> UK-EU free trade agreements: the UK could seek to negotiate its own Free Trade Association with the EU. Similar to the Swiss model (above) but involving a single comprehensive agreement with the EU rather than multiple agreements on a sector-by-sector basis. This might be able to provide greater continuity of the internal market, e.g. in financial services, than the options above. In principle, the UK would not be obliged to contribute to the EU budget or participate in the EU common agricultural, fisheries and commercial policies. It would not have the right to influence the rules in the internal market and its exports to the EU would have to comply with all relevant EU technical standards. The UK would have the freedom to regulate its own financial services sector.

> World Trade Organisation: the purest form of the exit scenario this does not involve independently negotiated agreements with the EU or individual EU states. The UK would have control over its trade policy and borders within existing WTO rules, would not be obliged to contribute to the EU budget, but would lose all its influence in EU legislation. All UK exports to the EU would be subject to EU technical standards and import tariffs and/or restrictions to the extent permitted under the WTO rules.

Bilateral agreements

+ EFTA

EEA + EFTA membership

UK-EU FTAsCustoms

unionWTO

Agreements with third countries: A possible UK exit affects not just EU/UK relations but numerous relationships with third countries which are presently governed by agreements between the third country concerned and the EU. These may need to be individually re-negotiated on a bilateral basis.

The referendum question: “Should the United Kingdom remain a member of the European Union?”

The Bill currently making its way through the UK Parliament has proposed the referendum ballot question and set the time frame for the referendum – to be held no later than 31 December 2017.

Negotiating a ‘new settlement for Britain in Europe’

The UK government has promised to ‘negotiate a new settlement for Britain in Europe’ so that the referendum would be a vote on the ‘reformed’ EU. Many generally pro-European groups within the UK, such as the Confederation of British Industry, also support the idea of seeking reforms of the EU. Proposals for reform that have been aired so far have focused on changes to the voting rights of member states, restrictions on the rights of EU workers and changes to the EU budget. The wish list may include:

> powers to allow national parliaments to block EU legislation

> reforms to EU voting rules to require a ‘double majority’ of both countries inside and outside the Eurozone

> an amendment to EU treaties to remove the commitment to an ‘ever closer union’

> restrictions on the rights to in-work benefits, such as tax credits and social housing to EU migrants who have been in the UK for four years

> powers to remove EU migrants seeking work from the UK if they are unable to find work within six months

> a ban on EU migrants claiming UK welfare benefits for the unemployed or low income workers and restrictions on payments of child benefit for children outside the UK

> restrictions on the right of EU migrants to bring non-EU family members into the UK

> reductions in EU spending and reform to the common agricultural policy and structural funds (EU funding for regions which are disadvantaged in terms of income, wealth and opportunities)

Negotiations on these reforms will be highly political, fraught with difficulty and are not guaranteed to be successful. Treaty change would require unanimous consent of the member states, and the most that would be likely to be achievable in the time before a referendum would be some sort of agreement in principle rather than binding commitments.

2015 2016 2020

Referendum likely to be held between Spring 2016 and Autumn 2017

May 2015 – European Union Referendum Bill presented to UK Parliament.

The strategy and terms of a negotiation with the EU are likely to be set during the summer with negotiations beginning in earnest in the autumn 2015.

UK repeal of European Communities Act would mean that EU treaty obligations were no longer recognised by UK. However, provision may be made to preserve aspects of EU law that the UK does not wish to lose, to the extent agreed with the other EU states or where the UK can continue to apply rules unilaterally.

IN – vote to remain a member of the EU.

2017

Will there be any greater clarity by the time of the referendum on the model to be adopted in the event of an ‘out’ vote?

If there is a vote for Brexit, a likely period of at least two years of negotiation, regulation and planning (for the government and business) would follow.

OUT – ‘Brexit’: vote to exit the EU.

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Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. The term partner in relation to Linklaters LLP is used to refer to a member of the LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on www.linklaters.com and such persons are either solicitors, registered foreign lawyers or European lawyers.

Key contacts

linklaters.com

Lucy FergussonPartner, LondonTel: +44 20 7456 3386lucy.fergusson@linklaters.com

Christopher BellamyChairman, Global Competition PracticeTel: +44 20 7456 3457christopher.bellamy@linklaters.com

Further information Linklaters has formed an EU Referendum Legal Working Group that has been considering many of the potential legal and business impacts and outcomes arising from the referendum, negotiations with EU Members leading up to it and the potential impact of a British exit from the EU. We will be continuing to develop our knowledge and expertise on the impact of the referendum for particular sectors and product areas and would be happy to arrange a meeting with you to discuss any areas of particular interest that you may have regarding the potential impact of Brexit on your specific business and/or those that will be

common to your sector. In addition, we are keen to share the output of our Working Group and to stimulate dialogue on shared issues, areas of concern, key risks and potential opportunities and are looking to arrange a number of events during the course of the coming months, including round table discussions (looking at key areas both in the context of certain sectors/businesses and where issues are common across sectors).

For further information or if you are interested in participating in these, please do not hesitate to contact us or get in touch with your usual Linklaters contact.

Arnaud de La CotardierePartner, ParisTel: +33 1 56 43 58 26adelacot@linklaters.com

Ulrich WolffPartner, FrankfurtTel: +49 69 710 03 350ulrich.wolff@linklaters.com

Bernd Meyring Partner, BrusselsTel: +32 2 505 03 32bernd.meyring@linklaters.com

UK exit from the EU could trigger several potential restrictions for businesses…

…but it could also bring some benefits to the UK through reduced regulations and increased policy freedom.

Restricted movement of goods Restrictions on imports and exports such as licenses, price controls, obligations to appoint a representative in the importing state, type approvals, national price controls.

Reduced regulatory burden Potential to reduce costs of EU regulatory burden and freedom to regulate own financial sector (e.g. bonuses, pay, etc.). The current transposition of EU directives would first need to be repealed and any new regulatory regime set by the UK government.

Restricted movement of capital Higher charges and fees, absence of tax benefits on cross-border capital transfers as granted to domestic EU capital transfers.

Control over internal policy Freedom to shape own agricultural and fisheries policy, as well as social and employment legislation (which is national policy but has minimum standards set by the EU) and immigration policy.

Restricted movement of workers Less flexibility in human resourcing if immigration controls are introduced, so that UK nationals cannot easily work in the EU or vice versa.

Control over trade policy Freedom to set external trade policy e.g. conclude trade agreements with third countries.

Restricted movement of services Obligations of establishment or to appoint a representative in the state of destination, obligation to obtain national qualification, or similar barriers raised in the UK.

No contribution to EU budget Stop contributions to the EU budget and structural funds; UK’s net contribution to the EU budget amounted to around £7.2bn in 2013.

Restriction of establishment Restrictions making the establishment of some activities subject to an examination of demand or requirements regarding legal form.

Sarah WigginsPartner, LondonTel: +44 20 7456 3252sarah.wiggins@linklaters.com