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Focus on Regulation

New Bill on Telemedicine is Submitted to the Russian Parliament

On 30 May 2016 a bill on telemedicine (the “Bill“) was submitted to the lower house of the Russian Parliament for consideration introducing a new form of provision of medical services in Russia – telemedicine (Bill No. 1085466-6 “On Introducing Amendments to the Federal Law “On the Fundamentals of Public Health Protection in the Russian Federation” and Article 10 of the Federal Law “On Personal Data”).

The Bill was drafted by representatives of the Internet community, including the Internet Development Institute, the Development of Internet Initiatives Fund and Yandex, a Russian internet search engine.

Under the Bill medical services will be allowed to be provided through the use of telemedicine technologies, i.e. with the help of means of communication.

The Bill provides that telemedicine may be carried out in two forms:

  1. Remote interaction among healthcare professionals on medical issues;
  2. Remote interaction between a healthcare professional and a patient for healthcare delivery.

Telemedicine will require identification of all the participants of the information exchange – healthcare professionals and patients or their legal representatives. It will be also needed to obtain separate informative consents from patients in electronic form.

The Bill itself has a frame nature. It does not provide for exact rules on remote interaction or a list of pathologies which may be covered by telemedicine. These issues will be subject to separate regulations.

We will carefully monitor the progress of the Bill and will post updates.

Medical Device Alert – The European Commission published a revised MEDDEV on the classification of stand alone software as medical device

On 15 July 2016, the European Commission issued a revised version of MEDDEV 2.1/6 entitled “Guidelines on the qualification and classification of stand alone software used in healthcare within the regulatory framework of medical devices“. This new document is intended to replace the original version of MEDDEV 2.1/6 which was issued in January 2012. The revisions to the original document introduced by the new MEDDEV 2.1/6 are, however, fairly limited.

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EEOC Revises Contractor Pay Reporting Rule

Today, the U.S. Department of Labor’s Equal Employment Opportunity Commission (EEOC) revised an earlier proposed rule that would require that federal contractors report pay data. The original proposed rule, published in January 2016, expanded the content of the annual EEO-1 report, requiring contractors with more than 100 workers to provide pay data on race, ethnicity and gender, as we explained in our summary here. The EEOC intends these changes to address continuing pay gaps in the U.S. workforce correlated with sex, race, and ethnicity, as well as workplace discrimination, which the Commission found to contribute to the pay disparities.

The proposed changes released today add a requirement to collect and report data on hours worked and pay ranges (achieved by allowing employers to cite income from W-2s, thus covering an employee’s entire year ending December 31st) . The EEOC felt that this data is necessary to enable it to account for part-time and partial-year work and to assess potential pay disparities for employees who do not work full time throughout the year. The EEOC hopes to capture in-year promotions that were not being captured by its longstanding “workforce snapshot” approach to data collection. Continue Reading

Western Governors’ Association Urges Expanded Role for States in Administration of the Endangered Species Act

At the conclusion of its annual meeting earlier this month, the Western Governors’ Association adopted a broad policy resolution (2016-08) with specific recommendations for reform of the Endangered Species Act (16 U.S.C. § 1531 et seq.).  Not surprisingly, these recommendations envision a greater role for states in the management of threatened species and their habitat, and in implementation of the Act.

Governor Mead’s Initiative

Adoption of the resolution came at the end a year-long “Species Conservation and Endangered Species Act Initiative,” featuring four workshops and five webinars for stakeholders across the West.  The Initiative was chaired by Governor Matt Mead of Wyoming, who had adopted ESA reform as the pivotal theme of his term as Chairman of WGA.  Speaking for a bi-partisan consensus of the western Governors, Mead observed that “(t)he current implementation of the ESA often deters meaningful conservation efforts and divides, rather than unites people.”

Full Partnership for the States

Relying on section 6(a) of the Act, which requires cooperation between the Secretary and the states in carrying out the ESA “to the maximum extent practicable,” WGA seeks a “full partnership” in administering and implementing the ESA.  The states’ expertise in resource management would be especially relevant in listing decisions and the designation of critical habitat. Perhaps the most far-reaching of the Governors’ recommendations is their proposal of a “regulatory presumption,” in which robust state or multi-state conservation plans would be recognized as justification to forgo the listing of a candidate species.  In this way, the Governors seek to codify the finding in PBPA v. Department of the Interior, where listing of the Lesser Prairie Chicken was vacated because the Fish and Wildlife Service (FWS) had failed to follow its own Policy for the Evaluation of Conservation Efforts (PECE).  In making a listing decision, FWS is required by PECE to determine whether a pre-existing conservation plan is likely to be effective if implemented, and whether it is likely to be implemented.

Goals for Reform

In addition, the Governors state seven “broad goals” to be considered by the Congress in re-authorizing and amending the Endangered Species Act: renewed emphasis on recovery of species and de-listing; reliance on “sound science” in making listing decisions; increased incentives and funding for conservation, including “block grant” of section 6 funds; and a definition of “foreseeable future” which signals whether climate change is to be a factor in listing decisions.

Next Steps

In announcing adoption of the policy resolution, Governor Mead made clear that ESA reform would remain a priority for him and WGA.  WGA staff are directed to prepare within three months the first annual action/work plan which lists specific actions, targets and timelines for “furthering the policy resolutions and goals (of the) resolution”.  These are likely to include adoption of a comparable resolution by the National Governors Association, where Governor Mead chairs the Natural Resources Committee, communication with the transition team of the incoming Presidential administration, and advocacy on Capitol Hill.  The Congress has for many years been loathe to tackle controversial ESA issues.  However, it may now welcome an opportunity for dialog on issues raised by Governors of both parties who seek a larger role for their states in the implementation of ESA.

Another week of Brexit developments: 5 – 11 July 2016

Following on from last week’s comments from Donald Tusk and Jean-Claude Juncker about when the EU expects the UK to trigger Article 50 of the Treaty on the European Union, comments by British officials in the last week have shed further light on the road to Brexit ahead.

What are the UK’s “constitutional requirements” for triggering Article 50?

Article 50 provides that “any Member State can decide to withdraw from the Union in accordance with its own constitutional requirements” and “a Member State which decides to withdraw shall notify the European Council of its intention“.  There is currently much debate in public law circles about what the UK’s “constitutional requirements” are for triggering Article 50; in particular, whether the UK Government is legally prevented from triggering Article 50 without prior Parliamentary approval (or even an Act of Parliament), or whether it is a matter of politics and constitutional principle (which is a more flexible concept than “pure law”, given the UK’s unwritten constitution).  Reports have emerged this week of a number of legal actions before the English courts seeking clarification about what the constitutional requirements for triggering Article 50 amount to as a matter of UK constitutional law.

Oliver Letwin MP, the Chancellor of the Duchy of Lancaster and Minister with overall responsibility for the Cabinet Office of the UK Government, in evidence given to the Foreign Affairs Committee of the House of Commons (the “FAC“) on 5 July 2016, stated that triggering Article 50 would be a matter for the next Prime Minister and that he had been advised by Government lawyers that it was an exercise of the royal prerogative (the accumulated customary powers vested in the executive arm of the Crown over hundreds of years).  He would not comment on whether the exercise of the prerogative was limited by the need for prior Parliamentary approval.

Mr Letwin did go on say that he thought the debate was “entirely academic” because “in order to exit the European Union, as well as reaching various external agreements, we very clearly will need either to repeal or substantially amend the European Communities Act. That requires action from both Houses of Parliament in primary legislation, and I don’t have the slightest doubt… that in the course of debating that legislation, questions about article 50, among many others, will be debated, inevitably“.

What is not clear from these comments is whether Mr Letwin meant that (a) Parliament’s involvement is not strictly required at the Article 50 stage (ie this is for the Government alone), but that Parliament will be involved when the European Communities Act 1972 (“ECA 1972“) is considered for repeal and therefore should play some sort of role before that; or (b) the possible repeal of the ECA 1972 will be debated by Parliament before Article 50 is triggered, and that Parliament will consider Art 50 as part of that wider debate.

The problem with (b) above is that, until Brexit takes effect (potentially some time away), the UK remains subject to EU law.  Therefore, repealing or amending the ECA 1972, which gives domestic legal effect to the UK’s constitutional relationship with the EU as a matter of UK law, before Brexit takes effect would risk the UK breaching its EU law obligations

Ultimately, the answer to this debate is likely to be overtaken by events, however, as – irrespective of the position in law – the UK Government will be under considerable political pressure to hold a vote in Parliament before triggering Article 50.

How might the Conservative Party leadership contest affect the withdrawal negotiations?

In last week’s blog, we set out the positions of each of the five candidates for the next UK Prime Minister in respect of triggering Article 50.  The field has now narrowed to two: the Home Secretary, Theresa May MP and the Minister of State for Energy, Angela Leadsom MP.

The two remaining candidates  will now campaign over the summer before, for the first time in British history, approximately 150,000 Conservative Party members will choose who will be the next UK Prime Minister. The winner is expected to be announced on 9 September 2016 (*see update below*).

So, what have they said about triggering Article 50 and the wider negotiation process?

  • Mrs May has said that there should be “no decision to invoke Article 50 before the British negotiation strategy is agreed and clear, which means Article 50 should not be invoked until the end of the year” and that “what is important is that we do this in the right timescale and we do it to get the right deal for the UK“.
  • Whereas, Mrs Leadsom has stated that the UK should “get on with it” and that the negotiations should be kept “as short as possible“: “Neither we nor our European friends need prolonged uncertainty and not everything needs to be negotiated before Article 50 is triggered and the exit process is concluded“.

The two candidates’ views also differ in relation to the status of EU nationals currently living in the UK. Mrs May has refused to guarantee that EU nationals currently living in the UK will be given unconditional rights of residence post-Brexit in advance of the withdrawal negotiations taking place.  The Foreign Secretary, Philip Hammond MP, in his evidence to the FAC on 7 July 2016, also stated that it would not make sense for the UK to offer reassurances on a unilateral basis that non-UK EU nationals could stay without receiving reciprocal statements from other Member States.  By contrast, Mrs Leadsom has committed to guaranteeing “the rights of our EU friends who have come here to live and work… we must give them certainty there is no way they will be bargaining chips in our negotiations“.

On 7 July 2016, the House of Commons voted 245 to two in favour of a non-binding motion that rejected the use of non-UK EU nationals living in the UK as “bargaining chips” in the UK’s negotiations to exit the EU, and which called on the UK Government urgently to commit to giving those non-UK EU nationals the right to remain in the UK. However, 325 Conservative MPs did not turn up for the debate.

***UPDATE: On 11 July 2016, Andrea Leadsom announced that she was withdrawing from the Conservative Party leadership contest, stating that Theresa May was “ideally placed to implement Brexit on the best possible terms for the British people and she has promised she will do so“.  David Cameron has announced that Mrs May will take over from him as UK Prime Minister on the evening of Wednesday 13 July 2016. ***

The UK’s continuing role in the EU pre-Brexit

In his evidence to the FAC, Mr Hammond stated that the UK Government intended to remain a fully participating member of the EU for the time being, and therefore expected to have a Commissioner in the European Commission able to represent UK interests. He confirmed that the UK Government was in the process of considering possible candidates to replace Baron Hill of Oareford as the UK’s EU Commissioner in the European Commission, after the latter resigned in the aftermath of the referendum result.  However, that appointment would be subject to the approval of the European Parliament and Mr Hammond noted in his evidence that there is “a mood afoot” among some Members of the European Parliament that the UK should not have a Commissioner.

On 8 July 2016, it was reported that the UK’s ambassador to France, Sir Julian King, has been nominated to be the UK’s next Commissioner.  It is understood that Sir Julian will be interviewed by Jean-Claude Juncker to assess his suitability for the role on 11 July 2016.  The European Parliament, who will then need to approve his appointment, reconvenes in September 2016.  The next UK’s Commissioner is unlikely to maintain Lord Hill’s portfolio on Financial Services and Capital Markets Union. The BBC has reported that the portfolio has been given to Latvia’s Valdis Dombrovskis and that the new British commissioner is likely to be given a “less sensitive” post.

The UK is due to take up the Presidency of the Council of the European Union from July to December 2017. However, in light of the result in the referendum, there have been calls for the UK to not take up the Presidency, including from the Chairman of the House of Lords EU Scrutiny Committee, Lord Boswell of Aynho, who said that “the result of the referendum also leaves huge doubts over whether the UK can possibly hold the Presidency of the EU in the second half of 2017. We urge the Government and the EU to seek alternatives as a matter of urgency“.

Mr Hammond accepted in his evidence to the FAC that there were practical questions to overcome, not least given the UK’s new status and whether it would be considered in the best interests of the UK or the EU for it to serve in this capacity, but did not rule out the possibility of the UK retaining the Presidency as this would be a matter for the next Prime Minister.

The work of the UK Government’s EU Unit

Finally in this week’s round-up, we now know a little more about the work that is being undertaken by the UK Government’s new EU Unit in the Cabinet Office, which will be responsible for examining the options for the UK’s future relationship outside the EU.

Oliver Robbins, previously Second Permanent Secretary in the Home Office, has been appointed as Permanent Secretary and head of the unit, which, according to Prime Minister David Cameron, will draw on the best talent from across the Civil Service.  It is reported that Mr Letwin, as the Minister with overall responsibility of the Cabinet Office, will play a “facilitative role”.

Mr Letwin confirmed to the FAC that the EU Unit has three tasks: first, to build a team of civil servants and, potentially, new recruits from academia and/or the private sector; second, to undertake “fine-grained, detailed” factual work on the background situation that will need to be understood by the next Government; and third, to draw together options papers on a wide range of issues to be presented to the present Cabinet, and therefore available to, the next Government.

However, Mr Letwin stressed that the EU Unit will not take any decisions in relation to the UK’s negotiating position, nor will it begin negotiations on behalf of the UK. This will be undertaken by the administration led by the next Prime Minister after 9 September 2016.  The EU Unit will also not make any recommendations, and the next Government will not be required to abide by its findings.

Do Digital Health Apps Risk Being Defeated by a Lack of Patient Engagement?

On 16th June, industry representatives met at the FT Digital Health Summit in London to discuss innovation and disruption in digital health.

Digital health technologies, including healthcare apps, have the potential to offer alternative healthcare pathways and, if utilised correctly, have the power to transform healthcare. But do healthcare apps risk being defeated by a lack of patient engagement?

Improvements in Digital Health

Advances in technology, such as widely available internet and smartphones, have allowed patients greater exposure to a wealth of medical information. Indeed, one in 20 Google searches is healthcare related, with many patients researching their symptoms or disease online before going to see their doctor. Continue Reading

A recap on Brexit: what do we know so far?

Today marks twelve days since the UK voted to leave the European Union.  We examine below what we have learnt about what lies ahead, as the dust is settling in Brussels and in Westminster.

ARTICLE 50

A deliberate act

Several aspects of Article 50 of the Treaty on the European Union (“Article 50” and “TEU“) – now arguably the most famous provision of European Union law – have been subject to debate following the referendum results.  In particular, what amounts to a “decision” under Article 50 and what is required for that decision to the “notified” to the European Union?  Comments last week by the Presidents of the European Council and the European Commission, Donald Tusk and Jean-Claude Juncker, make it clear that the European Council considers the invocation of Article 50 to be a deliberate act by the UK government that is yet to take place.  This alleviates concerns that the UK might be deemed to have unwittingly triggered the withdrawal process.

The only way out

There has been speculation as to whether the European Union, pending or in the absence of an Article 50 notification by the UK, could force the UK to invoke Article 50 or use alternative measures to eject the UK from the European Union.  In press conferences last week, Tusk and Juncker described the UK government’s invocation of Article 50 as the only possible legal route forward. This tells us two things: (1) because there is nothing the European Council can legally do to compel a notification, the divorce from the European Union will only begin once the UK government pulls the trigger; and (2) the European Council does not consider there to be alternative procedures to Article 50 – at least openly. The ball is therefore in the UK’s court, as far as the European Council is concerned.

This of course does not preclude political and economic pressure from Europe.  In addition, although not mentioned in press conferences, it remains open to the European Union under Article 7 TEU to suspend the UK’s membership of the European Union, if the UK does not comply with its European Union obligations while still a member.

Timing of notification

There is no doubt that Europe wants to see a notification imminently.  The European Parliament, attempting to put pressure on the UK government, went so far as to pass a resolution that “in order to prevent damaging uncertainty for everyone and to protect the Union’s integrity“, it expected David Cameron to make the notification last week.  That resolution, however, was not binding as a matter of law.  Despite pressures from Europe, David Cameron has made clear that the decision to invoke Article 50 will be a matter for his successor.  This means that we will not see a notification until the Conservative Party appoints a new Prime Minister.

Europe seems to accept that this will be the case.  While the European Council wants the UK to specify its intentions as soon as possible, Tusk has recognised that “some time is now needed to allow the dust to settle in the UK“.  Comments by Juncker on how soon after his or her appointment the new Prime Minister should invoke Article 50 (two weeks if from the Remain campaign, and the day following the appointment if from the Leave campaign) also show that the European Council has thought pragmatically about what the leadership changes in the UK mean for the timing of the notification.

When, then, do the five candidates for the UK Prime Minister post intend to make the notification if appointed?  We outline below indications given so far by the Prime Minister candidates in press interviews and their respective campaign launches.

Theresa May thinks there should be “no decision to invoke Article 50 before the British negotiation strategy is agreed and clear, which means Article 50 should not be invoked until the end of this year“.  Michael Gove wants extensive preliminary talks with the EU before triggering the Article 50 process next year.  Stephen Crabb has been less clear on timeframes and suggests that the country should be “brought together with an advisory council” before “we even get on to making any decisions about when we activate Article 50“.  Liam Fox wants to “talk to our German and French colleagues” before triggering Article 50 and has marked 1 January 2019 as a potential Brexit date.  Angela Leadsom, by contrast, wants the UK to “get on with it” and exit the EU as early as next Spring.

Despite diverging opinions on how and when the UK should exit the European Union, none of the five Prime Minister candidates back a second referendum or an early general election.

NEGOTIATIONS

No negotiations without notification

While the European Council cannot compel a notification in law, it is adamant that no negotiations will take place until Article 50 is invoked.  This was made abundantly clear by Tusk and Juncker at a press conference following the informal meeting of the remaining 27 Member States on Wednesday last week (referred to as the “EU27”). Once the decision to withdraw has been notified, the European Council will adopt guidelines for the negotiations of an agreement with the UK. We have therefore reached an impasse.  (Note, however, that David Cameron in Prime Minister’s Questions on Wednesday last week suggested that he believed this does not necessarily rule out “discussions”.)

The EU27 is due to meet next on 16 September 2016 in Bratislava to continue discussions.  In the meantime, as the European Council has specifically pointed out, European Union law continues to apply to, and within, the UK until the UK leaves the European Union, both when it comes to rights and obligations.

Potential negotiators

Tusk and Juncker stated that in the process going forward, the European Commission and the European Parliament will “play their full role in accordance with the Treaties“.  There is some indication that the European Union institutions are already taking steps to prepare for the negotiation stage of the withdrawal process.  There have been media reports about the creation of a Brexit taskforce in the European Council led by Belgian Diplomat Didier Seeuws, as well as that a three-person “Brexit negotiation team” has been put in place by the European Parliament, consisting of Belgian MEP and former Prime Minister, Guy Verhofstadt, German MEP and Chairman of the European Parliament Committee on Foreign Affairs, Elmar Brok, and Italian MEP and Chairman of the Committee on Economic and Monetary Affairs, Roberto Gualtieri.

No internal market à la carte

The European Council has been particularly firm on one point of the substance of the negotiations on the UK’s withdrawal: there will be no access for the UK to the internal market without acceptance of the four fundamental freedoms of people, goods, services and capital.  According to Juncker, such acceptance must be without exception and nuance.

Trade between the UK and the European Union

European Union trade commissioner Cecilia Malmström stated last week that talks on a new trade agreement between the UK and the European Union should not start until after the so-called withdrawal arrangement is completed.  She indicated that following the UK’s exit and pending the entry into a new trade deal with the European Union, business would be conducted with the UK as a “third country” under World Trade Organisation rules.  This suggests that the European Union will only focus on the terms of the withdrawal agreement until Brexit occurs.  However, Article 50 provides that the withdrawal agreement should take into account the framework of the future relationship of the exiting Member State with the EU27.  Therefore, both sides will inevitably consider the structure and the main elements of their post-Brexit relationship during the negotiations on the withdrawal arrangement.

IMPLICATIONS FOR BUSINESSES

Most of the Prime Minister candidates want time for deliberation and development of a negotiating position before triggering Article 50.  This means that businesses should not delay in considering the impact of European Union law on their businesses and make sure that their voice is heard by government.  For example, is access to the internal market of paramount importance to their business?  Is the nature of European Union regulation in their sector such that their operations are particularly at risk if there is a less-than-smooth transition to a post-Brexit settlement?

It is clear that engagement with business on the implications of Brexit is also a government priority.  On Thursday last week, Business Secretary Sajid Javid announced that a new inter-ministerial group has been established to coordinate engagement with the business community following the referendum.  According to a press release, the group will look at “where businesses are seeking clarity and certainty and make sure the government is sending a clear message that it remains committed to making the UK the best place in the world to start and grow a business“.

Businesses should therefore not hesitate to inform the discussion by making their position known.

Together forever? How State aid law will affect the UK even after Brexit

After the UK Brexit referendum of 23 June the implications on the political, economic and legal relations between the UK and the EU have been discussed from many angles. But what about one of the main pillars for the successful integration of the European Single Market: State aid law? Does the end of EU membership also bring to an end the application of State aid provisions that shall ensure that domestic support for companies such as grants or tax breaks does not distort competition? It may not be as easy as this.

Background

The UK is known to be one of the Member States generally in favour of market economy. Despite exceptions, the UK was less active in providing governmental support to the UK economy than other Member States. UK policy was also characterized by a strong record of compliance with EU State aid rules.   Nevertheless, following the Brexit vote, the UK Government’s incentives to support its own economy to alleviate the effects of a possible downturn caused by the Brexit vote have increased. Indeed, some Brexit campaigners even accused EU State aid rules for having caused the downturn of certain UK industries such as the steel sector. At the same time, at least until an actual Brexit, the EU Commission remains in charge of the application of State aid rules throughout the EU, including the UK, to avoid distortions of competition. It is also possible that certain on-going State aid cases may be singled out in the Brexit negotiations.

The legal situation until Brexit

Up to an actual Brexit, EU State aid law remains in force in the UK as much as in any other EU Member State. Thus, the European Commission will continue to monitor compliance of any aid granted in the UK with EU State aid laws. However, it remains to be seen how vigorously the Commission would exercise its discretion to open cases against the UK where State aid implications are not crystal-clear, e.g. regarding block-exempted aid. The Commission may concentrate its resources on the more prominent cases with a UK angle to demonstrate its commitment to enforcement of the State aid rules prior to the Brexit.   Vice versa, there is no indication today that the UK would not have an incentive to fully comply with EU State aid rules throughout the transition period. The UK government has stressed the importance of a reliable and cooperative future relationship with the EU. This political goal would be at risk if the UK opted for non-compliance with existing State aid rules.   Only if the UK in the course of the negotiations opts for a “Full Divorce” model, meaning only WTO subsidies rules applying (see below), there may be less of an incentive for the UK to still notify all aid measures to the Commission, in particular shortly before the implementation of the Brexit.

The legal situation post-Brexit

The situation will be different in a post-Brexit world. If the UK wants to secure access to the EU single market, it may well have to agree to some sort of State aid control as a condition of access to the EU free trade area.   Should the UK join the European Economic Area (“EEA“), it would remain subject to the same EU competition and State aid rules as before, as they are replicated in the EEA Agreement.  In this scenario, the UK would also still be subject to supranational State aid control through the EFTA Surveillance Authority (which enforces the EEA competition and State aid rules in the EEA States). As this would contradict one of the main political arguments of the supporters of the Brexit this solution seems rather unlikely.   In case of a tailor-made free trade agreement between the UK and the EU, the UK likely will have to agree to a certain level of State aid control, as the other EU Member States may require this to be part of such a package.  In this scenario the UK would have to self-enforce the State aid rules.  While this may be a more desirable option for the UK’s Leave majority, it is questionable whether the EU would offer full market access in exchange for a less predictable State aid control mechanism that would be in the hands of the authority that granted the aid, i.e. the UK government.   Only if the UK opts for a “Full Divorce”, i.e. leaving without entering into any special relationship with the EU or access to the single market, no State aid rules would apply in the post-Brexit UK. The UK will be bound by the WTO Agreement on Subsidies and Countervailing Measures which disciplines the use of subsidies and it provides for remedies to counter the adverse effects of subsidies. WTO law allows a country, following an investigation, to charge extra duty (“countervailing duty”) on subsidized imports that are found to be hurting domestic producers.

Post-Brexit implications for UK undertakings active in EU Member States

Whether the UK will be subject to a State aid regime or not post-Brexit, EU State aid law would continue to apply to UK companies with subsidiaries in the remaining EU/EEA Member States, either as beneficiaries or complainants. Since the EU Member States have banned any type of export subsidy, at least the UK would not have to fear that such measures harm its own markets.  Furthermore, the WTO Agreement on Subsidies and Countervailing Measures prohibits export subsidies.

Post-Brexit implications for EU undertakings active in the UK

For EU undertakings with affiliates in the UK, the Brexit vote should have little impact on on-going proceedings prior to the Brexit.  Also in the future, any support a company receives in the UK will be treated separately from any support an undertaking may receive in one of the remaining EU/EEA Member States, i.e. there should not be any accumulation of aid unless the UK and the EU specifically agree on such a provision.

Future proceedings regarding the UK in tax matters

One area in which the European Commission has increased State aid enforcement significantly in recent months concerns national tax rulings. So far, there have been no proceedings against the UK.  However, the Brexit vote may have created incentives for the UK Government to use its taxation practice as a means to subsidise domestic companies in the troubled post-Brexit economic environment, possibly including in the banking sector. If this was the case, the Commission may have to consider becoming active in this area as well.

What companies need to consider now

Regardless of Brexit, EU State aid law will remain relevant for companies within and outside the UK. In fact, as the UK Government may have stronger incentives to subsidise domestic undertakings to strengthen the UK economy, any such measure should be carefully reviewed under EU State aid law until the Brexit actually takes place. Aid beneficiaries should also consider the political dimension the future relevance of State aid law in the UK may have during the negotiations between the UK and the EU. It is likely that State aid will continue to affect the UK even after a Brexit, unless the UK is willing to entirely forego any special access to EU/EEA markets.

 

Waste not, want not: The High Court finds that HMRC breached legitimate expectation on landfill tax

The High Court, in the recent case of R (Biffa Waste Management Services Ltd) v the Commissioners for HMRC [2016] EWHC 1444 (Admin), has provided much needed clarification on taxpayers’ entitlement to rely upon rulings by HMRC where the ruling is general in nature but framed to apply only to specific transactions.

Facts

The claimant, Biffa Waste Services Limited (“Biffa“), a supplier of waste disposal services that operates 12 active landfill sites in the UK, challenged HMRC’s direction to Biffa on 20 October 2014 (the “Contested Decision“) to treat the use of material in the construction of a “regulation layer” – the layer above the final layer of soft waste placed below the “cap” that seals the landfill containment system – as subject to landfill tax (“LFT“).  The decision reinstates HMRC’s revocation on 31 May 2012 of a ruling on 28 September 2009 (the “Ruling“) that the regulation layer at North Herts Landfill Site (“North Herts“) was not subject to LFT.

In 2009, Biffa sought clarification from HMRC on the tax treatment of its installation of a regulation layer as part of restoration works at North Herts, in light of legislative changes to LFT that were about to come into force under the Landfill Tax (Prescribed Landfill Site Activities) Order (SI 2009/1929) (the “Prescribed Activities Order“). This prompted HMRC to issue the Ruling, which stated in unambiguous terms that the installation of a regulation layer at North Herts fell outside the scope of LFT.  In reliance upon the Ruling, Biffa did not account for LFT in the material used to construct the regulation layer at North Herts nor at any of its other landfill sites, on the footing that the regulation layer at each of those sites was materially the same as the regulation layer at North Herts.

On 31 May 2012, following tax audits of other landfill sites operated by Biffa, HMRC revoked the Ruling, describing it as an “incorrect decision” that wrongly interpreted the Prescribed Activities Order and that did not apply to “the regulation layer at any site other than [North Herts]”.  On that basis, HMRC issued a protective assessment against Biffa for more than £69m of LFT from 2009 to 2012.  Ernst & Young, on behalf of Biffa, requested an independent review of the decision, which ultimately led to HMRC issuing the Contested Decision.

Challenge

Biffa filed an appeal against the substantive nature of the Contested Decision in the First-tier Tax Tribunal.  However, as it was precluded from advancing public law grounds before the Tribunal, Biffa also applied for judicial review of the Contested Decision on grounds that it breached Biffa’s legitimate expectation under EU law and its right under Article 1 of Protocol 1 of the European Convention of Human Rights.  In its High Court challenge, Biffa contended that: (i) the Contested Decision was contrary to the Ruling as it represented that the regulation layer was not subject to LFT; and (ii) HMRC may not apply the Contested Decision retrospectively, i.e. in respect of material used in the regulation layer prior to 31 May 2012.

Decision

The central issue discussed in Sir Kenneth Parker’s judgment is the meaning and the scope of the Ruling.  Disagreeing with HMRC’s principal argument that the Ruling was confined to North Herts, he found the Ruling “implicitly” to extend to other sites as being “a general statement by HMRC […] as to the meaning and effect of the relevant legislation that could legitimately be relied on, not only in respect of the regulation layer at [North Herts], but also in respect of a regulation layer […] at any other landfill site.”   The judge primarily cited the facts that Biffa’s request for clarification in 2009 was for general guidance on the application of the new legislative regime to the regulation layer and that HMRC’s correspondence with Biffa following the request but before the Ruling was put in general terms and not confined, either expressly or impliedly, to North Herts.

Moreover, there was nothing to suggest either that the regulation layer was unique to North Herts, that the relevant operating procedures or regulatory position was materially different at other Biffa sites, or that the Ruling turned, or could rationally turn, upon characteristics specific to North Herts.  On that basis, and as it was evidenced that HMRC knew that Biffa deployed a regulation layer at their sites generally, Sir Kenneth Parker went so far as to state that: “Indeed, in my view, it would have been irrational if Mr Hart [of HMRC] had concluded the Ruling by expressly stating that it applied, and applied only, to [North Herts], and that it could not be relied upon in respect of any other Biffa site.

The Court allowed Biffa’s claim.

Criticism of HMRC

It is of note that the judge was highly critical of HMRC’s conduct in the case, particularly in relation to failures to disclose relevant documents: “It is deeply unattractive, to put the matter at its lowest, for HMRC to advance a case, based upon incomplete material known to the taxpayer, that a particular representation should be given a very narrow scope, when HMRC has in its possession further significant documents that, on a fair reading, show that no such narrow scope was intended at the time by HMRC.  The position reached in this case, as far as I am aware, is without precedent, and I sincerely hope that it will never recur.

Sir Kenneth Parker went on to suggest that for a public authority to put forward as the true meaning of a particular representation an interpretation that is wholly inconsistent with what the public authority intended at the time was “simply offensive to justice and unlawful“.

Comment

This case provides helpful guidance from the Court on the taxpayer’s right to rely on tax rulings where there is no material difference between the subject matter of the tax ruling and that in the later scenario.  HMRC in particular often frame rulings by reference to specific facts. The lesson is that if the taxpayer has asked for general guidance, that framing may not be enough to stop the ruling being seen as a general one.

This is one of a number of current HMRC judicial review cases where HMRC seek to resile from guidance having concluded it be wrong in law. In some of those, HMRC argue that they simply have no duty to honour guidance which turns out to be incorrect. In others, HMRC say that guidance which merely interprets the legislation cannot bind them. Neither argument was advanced here.

Case: R (Biffa Waste Management Services Ltd) v the Commissioners for HMRC [2016] EWHC 1444 (Admin)