Brexit – The Rhetoric And The Reality Impact On Property Investment (Video) – Government, Public Sector – European Union – Mondaq News Alerts

Credit: Original article can be found here

Bernardine Adkins, the Head of EU, Trade and Competition gave an
overview of what the Brexit deal – the Trade and Cooperation
Agreement – means for the property investment community. It

  • A review as to how much regulatory freedom the UK now has to
    set its own industrial policy in a post Brexit world
  • The new subsidy control regime – its impact in
  • Foreign direct investment – the National Security and
    Investment Bill – application to real estate and domestic
  • Freedom to provide services – ambit and how will this
    will work in practice
  • The UK’s independent trade policy – achievements and

Lee Nuttall, a partner and leader of the national Tax Group gave
his thoughts and observations on Freeports and whether it weighs up
what it really means and its pros and cons.


Chris Hunt: A very good
morning to everybody and a very warm welcome to this IPF Seminar
entitled “Brexit – the Rhetoric and the Reality Impact on
Property Investment”, a subject close to all our hearts, of
course. My name is Chris, I am a Real Estate Partner at Gowling WLG
and I lead the firm’s Commercial Development and Investment
Team and the Real Estate Sector Team.

For those of you who do not know us, Gowling WLG, we are an
international law firm with over 1,400 lawyers worldwide. Real
Estate is at the core of our firm. We act for developers,
investors, funders, occupiers across all asset classes from living
and logistics to retail, life sciences and offices and everything
in between.

And I am delighted to say that on this subject we have two of
our biggest brains, two of the firm’s biggest brains speaking
today. Bernardine Adkins is our Head of EU Trade and Competition
with over 25 years’ experience advising clients on strategic
trade and competition issues, so she will be ideally placed to
speak on the subject of Brexit and, I know, will provide some
really useful insight today. And, talking of useful insight, Lee
Nuttall is our Head of UK Tax, also with 25 years’ experience
advising clients on UK direct and indirect tax, as well as tax from
an international perspective.

Now before I hand over to Bernardine I should point out, and
this perhaps goes without saying, but how Brexit will affect
property investment is a substantial and complex subject to cover
in a mere 45 minutes. So we will cover some of the headlines today
and areas we think are of particular interest, but if you would
like to follow up with us afterwards please do, it is a massive

And from a purely housekeeping point of view, if you have any
questions along the way, please do post those using the Q&A
button on your screens. We will answer as many of those as we can
today in the time allotted, but we will certainly follow up with
you direct afterwards if you would like us to, if we do not get to
them today. So I think that is probably enough from me. Bernardine,
I am going to hand over to you and I think you are then going to
hand over to Lee for a while and then come back to you and then we
will deal with questions. So, Bernardine over to you.

Bernardine Adkins: Fantastic.
Thank you very much Chris. So good morning everybody. So we really
need to take a food analogy here, what Lee and I are really trying
to do today is to give you a distillation, au jus or a bone broth
of the specific areas that we think are pertinent to property
investors in terms of understanding the emerging regulatory and
trading environment that will affect you and land values.

So what we are going to do is a brief overview of Brexit,
free-trade, over to Lee to examine freeports, briefly on freedom
provide services; and then some good news, the new subsidy control
regime; and then the bad news, foreign direct investments,… so by
then… and obviously on to questions.

So very briefly, the point I want to make here is not a geeky
lawyer’s point because what we are now seeing… we have come
away from the EU law regime and that is going to mean actually a
fundamental realignment that citizens and businesses have with the
State in terms of challenging the State. Whereas before you could
always write into the Commission and say “why are the beaches
in Liverpool full of pollution?” and something could happen.
That possibility has now gone.

So from a property perspective, in terms of planning
applications, environment… that actually, depending on your
perspective, could be a good thing or a bad thing. So, so much more
power is given to the State and there is far less of a possibility
to actually challenge the use of that State power. So that is an
overlying possibility that we are going to see. It is really like a
stick of rock, fundamental to how we are going to see this new
emerging trading environment and regulatory environment.

The other point to make is one made by Fintan O’Toole, who I
think writes the most sense in this area as to what is happening,
is that there is no underlying philosophy or thinking under Brexit.
So contrast, for example, monetaries and where you could actually
largely predict the way the State was going to go, the way
regulation was going to emerge – we do not have a plan
underlying it all. So in terms of predicting what is going to
happen next (laughs), it is actually rather difficult to do so. So
I think people need to stay nimble and light and expect the
unexpected, frankly.

So the other thing that people, are you know surprised to find
out, my goodness where is the deregulation, is that… I am afraid
we are not going to see deregulation, we are seeing the opposite.
What is happening now has never happened before. We have got two
integrated sets of economies, the EU and the UK who are highly
integrated, complex to us and supply chains, pulling themselves
apart. One of whom is setting themselves out to say we want to
actually develop in a very very different regulatory fashion. So it
is very very different indeed to what we have ever done in the

So where did we end up? We ended up with the trading
co-operation agreement. As you know, it all came out on Christmas
Eve. It had no surprises quite frankly, for people who were
watching this area and it was very much where we would necessarily
have landed up given the redlines that Theresa May set out in her
speech and then also given the fact that the EU said “no,
it’s fundamental that we protect the Single Market”, that
if you are not willing to have your rules the same as the EU rules
we will not recognise your rules. So therefore you are not going to
get the same level of access as you would expect to have if you
were signing up to the Customs Union and also the Single
Market.” So very much focussed on goods, very little on trade
and services.

We were expecting to have recognition of equivalence, for
example in financial services. That was meant to happen back in
June, the EU has not done that and I suspect the UK is going to say
in respect of financial services “we’re sick of waiting,
we’re going to go our own way and we will manage fine”. We
are seeing our border checks as well, big surprise to everybody.
The previous protocol on Northern Ireland has been maintained, we
have a border in the North Sea and also we have… over time there
will be control back to what you call “aquatic real
estate” UK fishing waters as well. And we no longer have the
hegemony of the European Court of Justice. So that had no

So what does that look like in terms of possibilities? We are
here in the middle… a free trade agreement under Canada, Japan…
there it is. So, yes there are some bits on the edges, around
security, but on the whole, we have a sort of free trade agreement
such as the EU has with Japan and the EU has with Canada, and it
probably is tighter. Quite frankly there is less available, simply
because we are so close to the EU, they were willing to give us
less than they, for example, gave to Canada or to Japan.

We have moved from… this is important in terms of land values,
property etc. etc… we have moved from a deep and integrated union
with the EU and that necessarily is going to produce its effects
and dislocations. I am mentioning briefly Northern Ireland, simply
because people always forget about Northern Ireland but that is
something that is going to matter, for example, with respect to
state aid.

Because the EU state aid will still apply to Northern Ireland
and so those of you who are in happy receipt of large state funds
as we “build back better”. Keep a watching eye out for
the Northern Ireland question, because the EU is saying actually it
is going to be very very easy for the EU state aid rules to be
triggered. Whereas the UK is saying “no, no, no, it is going
to be much more difficult”. So that is a possible area of
conflict where you need to be very very careful. But for some
reason Northern Ireland is a blind spot, I am afraid, with the
British, which is why we have ended up with the backstop becoming
the front stop. It is there as a permanent border until such time
as the Irish decide otherwise.

So what have we got? We have now got a border and we have
securities and safety checks at the border, especially with respect
to food, animals and plants – what we call fighter sanitary
checks. We also have VAT excise etc. etc. So what really matters in
the respect of, and I will come on to this, is the question of
origin from a property investment perspective and I will come on to
that briefly. But what I do want to say is that “we have not
seen nothing yet”. Despite people gnashing of teeth and saying
this is awful, this is Brexit, actually at the moment we
haven’t yet really experienced Brexit because one we are all
locked up in our back bedrooms, but two, the UK has not really put
in place the rules that the phytosanitary checks that you get at
the border. It was due to start imposing them in April, especially
with respect of food. They realised goodness we are going to be
letting people out that are going to be sitting in the pubs and
there is going to be no food because if this is not ready. It’s
not got adequate vets quite frankly to sign off on the health and
safety check so they have commuted out to October when the UK is
going to, customs authorities are going to be checking food coming
in. It has been pushed out to October. So those of you thinking of
getting an extra freezer I would say get it now while you can. They
have also commuted out until January when people are going to be
required to put in full customs declaration. So putting it cruelly
the best is yet to come. We have not really properly experienced
Brexit. So yes exports, they are experiencing the full Brexit
because the EU straightaway said “we are going to put those
full controls” that’s why people are having difficulty
exporting but in terms of importing quite frankly the UK is waving
things through at the moment.

So moving on next to this issue of free trade is a misnomer, so,
I think the first thing is to see all of this in perspective around
tariffs. This is something no one ever says. The WTO has actually
been largely very very successful in bringing tariffs right down.
It is only in certain sensitive areas that countries impose tariffs
and it tends to be agriculture, clothes, cars, a few aberrations
such as medical devices but other factors of trade tend to be very
very low indeed. So you need to see this in perspective, but in
respect of certain areas there are high tariffs because states want
to, for example, they want to have their own indigenous food
production so a whole business about a free trade agreement around
goods is to be bring those tariffs down however you only get zero
tariffs where you can prove, you can demonstrate that the good in
question meets the rules of origin, in other words, this originates
from the country from which I am exporting . So this good has been
produced in the EU, the goods in question, the components were made
in the EU or it’s got a certain element, you know, up to 60%,
depending on the good in question whereby you can get zero tariffs.
That is a lot of work, people have to be quite clear as to what the
supply chain is. Now our problem here is we’ve got highly
integrated supply routes. So what we are seeing is that, so for
example a cheese will be manufactured in Holland, hypothetically
speaking the Netherlands, it will be imported to the UK, it will be
grated there and then they would send it off to supermarkets in
Ireland, Scandinavia, back to France perhaps. However the good has
become stateless. The cheese is stateless. So it loses the
possibility when it goes out into Ireland or Scandinavia. It will
then have tariffs put back onto it because it can’t benefit
from UK origin because not enough of a transformation happened to
it, it was only grated. If it had perhaps been put on top of a
pizza you would have had a complete transformation whereby you
would get zero tariffs. So what we are going to see, and this is
important from a property investment perspective, these supply
chains, these routes, these hubs, these warehouses are going to
change because certainly at the coal face here we are seeing those
chains being broken up and where the UK would have been a
distribution hub, that is now going to stop. So that is very
important to appreciate from that perspective. And then lastly but
by no means least before I hand over to Lee is the question of
trade agreements and again I just want to disinform you here, most
the trade agreements we’ve seen so far are what the Swiss call
“stop the gap agreement”, in other words they are
rollovers of the statuesque. Everybody wanted trade to continue so
the statuesque is in place. What we are seeing now for example with
Australia, these are the new next generation agreements. Most trade
agreements, quite frankly people do not put agriculture on the
table. So for example, the US and the EU have never been able to
get a sufficient agreement because the EU have always said we will
not put agriculture on the table. So what we are seeing is very
likely, and remember where you heard it first, that the UK is going
to put agriculture on the table, otherwise how on earth are we
going to get access to the economies of the service economies which
is where we make our money of these third countries. So as far as
we expect to have a trade agreement with the US or India or China
and indeed the CPTPP as it’s called, we will necessarily put
agriculture on the table. So yes I know everybody is talking about
will not have beef etc etc but you can expect there are going to be
some radical changes in my view to how we exploit land farming in
the UK and that obviously will affect land values and how land is
exploited because if we do not put agriculture on the table quite
frankly we have got nothing to trade. There is a lot of noise
spoken about the CPTPP it is only 9% of our external trade, it is
all of the countries around the Pacific, so it is things like
Australia, New Zealand. It is a platform agreement, we are about to
recede to it but we are also going to have separate parallel
bilateral trade deals with these individual countries and it is for
business to decide which trade agreement they want to trade under.
So again this is going to be quite difficult, quite complex. A lot
to pick our way through but I think it is important to bear in mind
and see this in context. This CPTPP no matter what you hear about
it, it is very much about tariffs and it is a question of focussing
on what sectors are engaged with tariffs and if it is by no means
all of them and it is at the moment very much limited to goods. In
the long term it may be about digital, long term it might be about
services, so when you hear all this that we have done this,
isn’t it marvellous, quite frankly see it in context. Now with
that I am going to hand you over to Lee.

Lee Nuttall: Bernardine thank you.
Good morning everyone. My subject today is freeports. Are they just
a clever marketing gimmick by government or could they actually be
a really good thing? As mentioned by others this morning this
presentation has been compressed and so I am going to apologise in
advance for the fact that this is on the top of the waves and
indeed has a pretty heavy focus on tax rather than exciting other
topics within freeports like planning.

So let’s kick off.

What is a freeport? A freeport is a secure customs zone, it is
located at a port or an airport where business can be carried out
inside the UK’s geographical land border but outside the
UK’s customs border so you can bring your goods into the UK
without triggering duties. I know how much property people like
plans so I’ve got my coloured pencils out and tried to
illustrate that on the slide, conceptually you just, you stretch,
the customs border around the freeport.

How are freeports created? The power to designate them is in the
current finance bill which is not quite a finance act. We expect
freeports to begin operations from late 2021. There are eight
primary customs sites or freeports that have so far been stable
designation in England. Another group in Wales, Scotland and
Northern Ireland and the names of those are set out on the screen.
I don’t think I need to go through them.

So what are the duty and customs benefits of a freeport? There
is duty suspension. This means there are no tariffs, no import VAT,
no excise duty is to be paid on goods brought into the freeport
from overseas until those goods enter the UK domestic market. So
those tariffs, VAT and excise duties are suspended and this then
facilitates some further benefits. We have duty inversion. If duty
on a finished good is lower than duty on its component parts, then
a business could benefit from importing components duty free,
manufacturing the final product within the freeport itself and then
when released into the UK domestic market pay duty at the rate of
the finished product. So taking advantage of the delta or
arbitraging in rates of duty, that seems to me to be a good thing
but more on that later. There will also be duty exemption for
re-exports. So a business based in the freeport could import
components into the freeport without duty at all, it takes
advantage of duty suspension. It could then manufacture the final
product in the freeport and pay no UK tariffs on the components
when the final product is re-exported. And the final benefit of
freeport is the promise of simplified procedures to give effect to
the benefits that I have just talked about. So these are the basic
cross border and tax advantages of a freeport.

Let’s look at some of the specific UK tax advantages that
are going to be introduced to further incentivise activities within
freeports. And those advantages are facilitated through the
creation within a freeport of a freeport tax site. So within each
freeport there is going to be a freeport tax a single continuous
area within which freeport tax reliefs, which I will come and talk
about in a minute, will apply. In property terms the freeport tax
site has to be within the red line boundary of the primary customs
site, but it could be the whole of that site or it could be part of
the site. The idea is for really large freeports that the benefit
of the freeport tax relief is concentrated within the freeport site
on those areas within it that are currently undeveloped so the
focus will be on undeveloped parts of the freeport and that of
course is to encourage regeneration and new additional productive
activity within the freeport. The many tax benefits is going to
draw, or does draw upon, the experiences of the UK enterprise zone
and most of those benefits will be familiar to those of us with
long enough memories to remember those things. These are benefits
that will be relevant to investors and landlords, to owners and
occupiers and to tenants who carry out activities within the
freeport tax site.

So what are the tax benefits? These are still a little fluid,
the details of the reliefs continue to be fluid as they go through
the parliamentary process but at the moment this is the position.
On business rates a relief will be offered to businesses within the
freeport tax site of up to 100% for new and certain existing
buildings. Clearly a benefit for occupiers. It is going to be
available from 1 October 2021 and applies for the first five years
from when the occupier first receives a writ bill or rates relief.
Writs benefit is in respect of capital allowances and there is
going to be an acceleration of the benefit of capital allowances so
for plant and machinery there will be a 100% enhanced capital
allowance and that will be available from 1 October 2021. A clear
benefit for owners and investors and tenants if they are expending
capital. Be aware of the small print though, there is going to be a
reversal of the acceleration of the capital allowance where the
plant and machinery actually leaves the freeport within five years.
Then there is going to be a second form of capital allowance that
is enhanced, that is the structures and buildings allowance and
this is going to be a freeports specific enhancement. The current
typical rate or the normal rate of SVA’s is 3%, well in the
freeport it will 10% for expenditure on construction, renovation or
conversion of commercial structures of buildings.

Turning to stamp duty land tax there will be full relief from
commercial SDLT on the acquisition of commercial land and any other
property transactions related to commercial property within
freeport tax sites. Again look out for the small print, there is a
clawback if the property is not used in the way it was intended to
be used for a period of three years. That is a clear benefit to
buyers and investors including pension funds and to occupiers
paying rent.

The final benefit is employer national insurance contribution
relief. This is going to be available to businesses located at a
freeport tax site from April 2022 for eligible employees who are
actually based at that site, so a benefit for employers to relocate
to that site. It is going to be available until 2026 and there may
be possible extensions until April 2031. At one point there was
going to be a further enhancement of research on benefit tax
credits but as a matter of policy the government has decided not to
proceed with that particular advantage within the site. So I do
think it is absolutely fair to say that these reliefs will be a
valuable incentive to a business to locate itself or to relocate to
a freeport and let’s not forget there are going to be other
benefits outside the tax regime including a streamline planning

So is this just clever marketing or is a freeport a really good
thing? The first point to mention is economic displacement. Much
academic work concluded that enterprise zones resulted in no
material increase in economic growth and few new jobs overall and
their impact was merely to move economic activity to divert it into
the enterprise zone from other areas. If that is what happens with
freeports that sounds a bit like a levelling up agenda, but the
problem might be that if it has moved only from the surrounding
areas rather than from other parts of the UK. That might not be
such a good thing in terms of regeneration of activity and
benefitting the economy of those areas where the freeports are
being placed. The political response yes there will be diversion of
economic activity and displacement but the hope is that that will
be from overseas to the UK rather than within the UK. We will

Duty and tariff inversion I spoke about earlier. They are a few
examples of inversion for example in respect of animal food stuff
but where inversion is identified economic research again evidences
the benefits seem to be small and not to have a material impact on
the UK economy. There are also risks associated with illegal
activity and smuggling around freeports counterfeiting, infringing
intellectual property rights, VAT fraud, corruption, money
laundering, and the political response to this is that there are
going to be robust control measures in place with HMRC, the border
force and so on and so forth and I am sure that will be right.

Tax payers subsidy displacement of investment for tax foregone
in order to subsidise the levelling up agenda is generous. Economic
analysis of the enterprise zone experience suggests a large cost to
the Treasury for each new job actually created and tax foregone has
to be found from elsewhere. Historically the Treasury’s
estimates of new job creation has been a bit over optimistic but
there are opportunities for occupiers, clearly at the moment mostly
manufacturers of goods with a broad subsidy to move to these places
if it is relevant to their business. Lots of opportunities it seems
to me for investors, demand for new buildings in these freeports,
reconstruction and renovation within freeports and there are tax
benefits to help enhance returns. So is it clever marketing?
We’ve got straplines such as freeports are national hunts for
global trade. They are going to promote regeneration and job
creation and create hot bits for innovation. All sounds a bit
frothy but in using freeports to encourage growth in the UK trade
and manufacturing to level up growth opportunities nationally, I do
think freeports could be on balance a really good thing and
something that the property industry should take note of and take
note of seriously. That’s all I have Bernardine, back over to
you. Thank you.

Bernardine: Thank you very much Lee. This slide
I just really want to briefly mention it so it is on your radar
simply because so much of this people have to have a fundamental
difference in mind set because we are so used to being able to grab
our passport and go across to France or wherever. That possibility
has now gone. It is now quite complex because on the whole the
issue of being provided services because this area hasn’t by
large been harmonised under EU law. It is very much down to the
individual member states so you have yes some limited possibility
for travel abroad and under the TCA again limited possibilities,
many, many reservations and so I would just say to you be careful
if you are in a situation where you are sending people abroad a lot
just be careful and be aware of why you are going, what you are
going to do that you do not end up being turned away at the border.
I just want to get that across people’s radar just because it
seems to be a blind spot with people as to just how limited the
possibility to provide services is and the number of reservations
that individual member states have made under the TCA.

I am going to go onto some good news, these are the state aids,
so under EU law it is called the state aid rules, under the TCA now
for some reason the breach we have insisted on scrubbing out any of
the terminology that was existing under EU law. It is now called
subsidy control, but frankly they are very much the same concepts
because the EU state overrules by deriving the WTO rules and so to
these new rules subsidy control rules are derived from the WTO. So
the same sort of thinking applies and putting it crudely, as I
always say state aid is where subsidies are where the government
gives an entity a bung something for free be it taking tax from
them so that they get a tax computation that is specific to them or
giving them a grant of funds so there are all sorts of
possibilities in the way that a subsidy can be given to an entity.
As I said earlier bear in mind the EU state aid rule still apply to
Northern Ireland or where it is a general grant that applies to the
whole of the UK and the EU says well we think this actually could
affect trade between Northern Ireland and the EU so that could
affect large grants.

I would say where you are getting legal advice on this issue, be
careful to make sure you get legal advice from somebody who is
EUEEA qualified. That way you get legal privilege vis a vis by the
European Commission. Which is why a lot of EU lawyers such as
myself would ensure that we are dual qualified both UK and Belgium
by in large because what people are tending to do to make sure you
preserve that legal professional privilege.

The other thing to say also is something we are seeing is people
still have this mind set of we must apply EU law EU thinking. I
can’t say this enough, we have left EU law state aid rules no
longer apply. Yes the UK is bound under the treaty to respect the
subsidy control rules but there is no actual implementing
legislation in the UK concerning the subsidy controls. So quite
frankly if there is somebody out there, a public body who is
willing to give you funds, grab it and run, putting it crudely
because there is no possibility for enforcement in the domestic
courts or by statute enforcement of state aid rules. As things
evolve, as the UK does put in a national regime into place, I
anticipate we are going to see more litigation, more judicial
challenge because the UK under the TCA is required to have
transparency when funds are granted, is required to have the
possibility for judicial challenge. So I see very much it will
become a much more contentious, more difficult area.

The other point to make that we are seeing is people still have
the mind set of we must by analogy apply EU law so we will try and
get it within the De Minimis block exemption or this particular
block exemption. Don’t, don’t let anybody do that to you.
If you are in receipt of state funds don’t allow people to cram
you into the old EU style thinking. The regime has gone currently
putting it crudely it is the Wild West which from a perspective of
being in receipt of those funds is a good thing. So a very much a
spot to watch is to what the domestic rules look like. At the
moment under the TCA the UK is only bound to comply with state
subsidy controls insofar as trade is effected between the UK and
the EU which is actually arguably a relatively high standard. Query
whether the UK is going to say “we are actually going to have
our own domestic regime whereby if there is a distortion of trade
ie. Wales or Scotland for example will have our own domestic
regime”, so that is very much a spot to watch.

Right last but by no means least coming on to foreign direct
investment. Actually we cannot blame Brexit for this, this is
something that is popping up like mushrooms across the globe as we
are seeing the whole geopolitical environment changing, people are
viewed as more hostile actors out there. The EU has passed its only
regulations so we are seeing the 27 member states to the extent to
which they don’t already have foreign direct investment
screening regimes we are seeing them coming through and they are
very quite similar across the board. So please in terms of if you
are involved in that area abroad be aware you must also look to,
even small countries, Denmark for example, they are implementing
their own regime and they are all very very similar. So the UK,
it’s got the act, this was passed and put before parliament
back in November, it’s now been adopted. Three types of review
mechanism, one mandatory notification, which is very unused to
mandatory notifications in the UK. Voluntary notification and a
retrospective call in right by the Secretary of State currently
which applies from November of last year. So he has got six months
to call in a deal he doesn’t like the look of because it might
affect national security. No definition of national security so
that will obviously change and evolve over time, so provided he was
aware of it you have a clock running of six months in which you can
call it in and if he is not aware of it you’ve got a five years
long stop.

What are the outcomes of such a screening assessment? One
approval, two approval subject to conditions and I think this is a
worrying area, I think listening to what he says in workshops etc
etc, I think that is where most of the action is going to be
around. The imposition of firewalls and conditions whereby so
called hostile actors can’t really control or do anything with
the asset or the entity that they just acquired or worst case of
all a prohibition.

So what are these trigger events? When can this screening apply?
Mandatory filing. It will apply in respect to the acquisition of
certain shareholding, certain trigger points, be at 25%, 50%, 75%
or where you effectively someone acquires a shareholding or right,
certain voting rights, whereby you are able to rock a corporate
resolution. So that’s for the mandatory filing. For the
voluntary regime, where the transaction could give rise to national
security concerns, out with the particular mandatory notification
sectors. You have a lower threshold, it is basically, I’m
afraid it is a little bit like the old not the 9 o’clock news,
it is looking at me in a funny way, it is where there is
acquisition of material. In the UK of course you know merger
control competition we are used to dealing with this concept but a
lot of people certainly non-UK entities are not familiar with this
concept of material influence. They are obviously going to be
having a look in regard to the body of decisional practice that
we’ve got in the UK as to what material influence means. I am
afraid to say it is very very fact specific.

A worrying concern for people involved in land acquisition is
the fact that a voluntary filing possibility includes land, so what
does that mean? So essentially from what we understand from Beige
is where you may be buying some land. A parcel of land, that is
next door to something which is sensitive from a national security
perspective. So it is a concern that that land may be in the hands
of a hostile actor or perhaps very near to an airport, something of
that nature.

Importantly by contrast for example to merger a control there
are no safe harbours so it could be really really small, the entity
in question could just be involved with just a small amount of ball
bearings which were used in ballistic missiles but a small amount,
nonetheless, will come within the mandatory filing regime. So these
are the sectors, very very broad indeed and speaking for example to
my life sciences colleagues, I said “look here is synthetic
biology, here is the expanded version of what that means, what do
you think?” and they are scratching their heads saying
“well that is a very very broad definition indeed”. So
military and dual use that is relatively simple frankly because if
it is dual use you know you have to get an export filing and other
areas, artificial intelligence, incredibly broad, so there is as
you can imagine a lot of consternation in the investment community
as to what this means. The government of course say “please
don’t worry, we only think it will be about 1800 filings a
year”. It is other people saying “no, no, think that and
then tenfold”. So we expect the people of going to be doing
fail safe notifications because they don’t want the Secretary
of State to come in after the event and investigate it and create
uncertainty and one of the reasons why particularly with respect to
mandatory filing is the sanctions for failure to notify. It is a
criminal offence if you don’t notify and that is obviously
going to focus people’s minds wonderfully. It’s called an
offence for obviously the corporate body but also the directors of
up to five years on indictment. I mean talk about a lot like a
proportionality, but that as you can imagine the consternation that
has caused which means that people are going to do fail safe
filings and fines obviously as well. From your perspective in terms
of being on the underlying land is that the completed acquisition
will be void, not invalid, void, which means that any other
transactions, property transfers etc, underlying that tainted void
sale agreement for example will be meaningless. So people are going
to really really have to focus on this because of the consequences
of getting it wrong. So you can anticipate that people are going to
be very concerned to make sure they do actually comply with these
rules. The only good bit about this is if people “forget”
is that they can get the Secretary of State retrospectively to
validate the transaction but please hope people don’t

So we have got the act in place, we have got mandatory filing
requirement. But guess what, the mandatory aspect isn’t yet
enforced because we are still waiting for the government to issue
the implementing regulations. So in the meantime what we have is,
the Secretary of State can call things in, so what is happening
people are basically doing fail safe filings to make sure that the
Secretary of State is informed about these deals and beige have
very kindly given us an email address to do that. So if you have
something where that it is of national security and also for
example, involving Chinese investors, reach out to Beige, make sure
that is within, they are aware of it, get that reassurance and
whereby you can be sure that Secretary of State will not come out
after the event saying “actually I want to call this in and
have a look at it”. So I am sorry to end with such bad news
and I think that ends our slides and over to Chris.

Chris: That’s superb. Thank you very much
for those. Lots covered there in a very short period of time but it
feels like we have just scratched the surface I’m sure. So no
questions in the Q&A box at the moment but we do have some via
other means. One for you to start with Lee. The SDLT exemption in
freeports, can that be for a standing asset or does there need to
be some development involved?

Lee: Anything would otherwise trigger an SDLT
charge will be exempt. There are some conditions attached to it,
you have to be carrying on qualifying activities but basically
those things are anything commercial within the freeport tax

Chris: Right. The tax regime around freeports
you would think would be hugely attractive to developers and
investors wouldn’t you, it is pretty blanket isn’t it?

Lee: Yes even pension funds are paying SDLT if
they don’t pay anything else and there are going to be
exemptions if they invest and let out their buildings to tenants
who carry out their freeport type activities.

Chris: Yes. Bernardine I think this might be
one for you, the EU public procurement rules, will they apply to
the UK public sector, public authorities, if there is no effect on
Northern Ireland or the EU?

Bernardine: No they don’t basically but the
UK has got its own UK procurement regime so it doesn’t mean we
are free of the procurement rules. We will still have procurement
rules but they will be of UK origin.

Chris: Yes and by the way I did like your
slightly aged now cultural references of the 9 o’clock news. I
think that might have gone over the heads of quite a few of our
attendees, but there we are and also that state aid is now going to
become the wild west which is a good thing apparently.

Bernardine: It’s not going to last so make
the most of it.

Chris: And those subject to conditions
following a notification, you gave one condition, have you got any
others because that strikes me as being quite material once it has
been called in which is conceivable on some real estate deals?

Bernardine: Yes absolutely because what they
are saying at the moment is we are going to make it really simple.
We are going to have IT and there will be an e-filing system and
one of the questions I have raised is that how on earth are you
going to know, you are going to have the experts to know when a
piece of AI for example, is of interest. They have said well
actually what we are going to do we will impose conditions. What
worries me is they are not actually going to enquire substantively
as to whether is this really an issue. They are going to be very
British about this, we don’t need to know that sort of stuff,
we are just going to start imposing conditions we don’t like
the look of you so we are going to say yes you can have that 25%
shareholding but you can’t exercise your voting rights. Things
like Chinese firewalls, you can’t export data. You can’t
inform the investor as to what is happening, they can’t make
decisions, they can’t see the business plan. There are all
sorts of conditions that could be imposed and obviously it is going
to be an evolving landscape as to what these conditions are going
to look like and then also you have got the question of how on
earth are they going to monitor those.

Chris: And subject to all the other criteria
being met I am assuming that the act will cover joint ventures with
overseas investors?

Bernardine: Yes that’s right. This really
does, as with other jurisdictions, have very very wide
extraterritorial effect. The hook is that the entity in question
needs to be carrying on activities in that sensitive centre in the
UK. It can be really really small, as I said it can be a couple of
ball bearings and so if the entity is registered abroad, the
sensitive entity, it does need to be providing activities in the UK
or supplying goods and services in the UK. So what the government
can’t do is say “ah we see your plans are to do this, you
are not yet here but we want to stop you doing it”. It has
actually to be happening so if the external investors aren’t
already active in that area in the UK the act won’t apply for

Chris: No. The act would also apply to a big
asset class that a number of people on the call might be involved
in which is data centres, and also the acquisition group of
structure. The 17 or so assets classes as you might define them
have described them being caught are actually quite broad
aren’t they as you’ve alluded to?

Bernardine: Very much and also at the moment
they are changing their shifting so the government is
sub-consulting. So people need to keep an eye on what are these
classes and they may shift and evolve as well but also we may have
an idea from this particular government of what they regard as
national security. But who would have thought a couple of years ago
vaccines would have been important so what we mean by national
security will evolve.

Chris: Of course and I like your literation so
fail safe filings might be the take away of the session actually to
get your filings in. I think you might have alluded to it, is the
process typically convoluted or is it relatively

Bernardine: We don’t know yet but they are
saying we are going to make it straightforward so let’s see and
who knows if the IT is going to work as well. So we will see.

Chris: Okay. I think we are rapidly close to
11:15, so I think all remains for me to do is to wrap up. Thank you
very much indeed to Bernardine and Lee. It really does feel like we
have scratched the surface on all these topics. Wide ranging from
the National Security Investment Act through to the tax regime on
freeports but lots and lots of good stuff. If you do have any
questions please do follow up with us and there will be an online
survey sent to those who attended the call, so please do complete
that, it is always helpful to get feedback, good or bad or
indifferent, so please do complete that. We look forward to seeing
you again next time and perhaps one day, perhaps in person, which
would be very nice indeed. Goodbye to everyone and thank you very
much for attending.

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