The First Effect of Brexit: Increased Merger and Acquisition (M&A) Transactions
The first effect of Brexit on multinationals in the UK is increased merger and acquisition (M&A) transactions. For instance, GlaxoSmithKline acquired Novartis for a total of $13bn. Also, outbound M&A deals shot by 32% while deals worth $234.5bn were completed in 2017 (Latorre, Olekseyuk, and Yonezawa, 2017, p.7). Other statistics indicate that by the end of that very period, there was a percentage increase of 126 in the number of foreign firms targeting UK firms. Again, in the first quarter of 2018, merger and acquisition transactions increased by 143% totaling to $107.2bn. Therefore, Brexit has brought about merger and acquisitions of local British firms by multinational companies in the UK.
The Second Possible Implication of Brexit: Mass Exodus of Multinationals from the UK
The second possible implication of Brexit is a mass exodus of multinationals from the UK. For instance, Japanese companies such as Honda and Nissan depend primarily on global supply chains. They import critical components from Japan for their car manufacturing factories. In case of a tariff imposed by Brexit, these companies will have to comply with rules of origin and duty-free treatments or face a 10% tariff if they opt for the global value chain to export their cars to EU. On the other hand, relocating to other European countries will enable these companies to remain in the customs union and avoid the trade-off. These firms will, therefore, find it economically wise to relocate and carry on their businesses in other European countries.
The Impact of Brexit: Forced Layoffs by Multinationals
The multinationals may also be forced to lay off employees as a result of Brexit. Essentially, Brexit will force international firms in the UK to face high tariffs when they want to transact business in the European market. Also, the move will mean that exports from Britain will be charged high duties. For example, firms such as Nissan with a plant in Sunderland and a significant market in Europe will find it expensive to sell its usual 80% of products in the international European market. Together with firms such as Hitachi, Honda, and Toyota, they will be forced to locate and hence render the 142,000 employees in Britain jobless. In sum, the international firms may resort to massive laying off of workers to reduce the cost of trading in the UK.
The Need for Remodeling Strategic Economic Plans
Moreover, multinationals in the UK will find it necessary to remodel their strategic economic plans. These may entail adjusting demand and costs of their products in both UK and EU markets. In particular, firms will set new prices to cover the costs of importing and exporting products in the UK. Similarly, firms will pass additional costs to consumers and push inflation up. On the demand side, sale volumes will drop and impact negatively on the profit margins of these companies. As a result, the financial statements of international companies in the UK will deteriorate and weaken their ability to meet both short and long-term financial obligations.
Moving Headquarters Out of Britain to Avoid Higher Taxes
The last impact for multinational companies in the UK due to Brexit may involve moving headquarters out of Britain to avoid higher taxes. Ordinarily, the headquarters of a multinational company receives incomes from its subsidiaries in other countries. Such profits should be exempted from taxation. However, with Brexit, these incomes will be considered as other sources of income and therefore be subjected to tax. The move will also mean that such multinationals will no longer benefit from interests, royalties, and dividends that accrue due to wholly owned subsidiaries (Latorre, Olekseyuk, and Yonezawa, 2017, p.9). Again, the international companies will face VAT halfway through the month after importation even before they trade. This trend is different from the present practice where firms pay VAT on a quarterly basis or after every three months. In a nutshell, Brexit has double tax implications on multinational corporations in the United Kingdom.
List of Work Cited
Latorre, M.C., Olekseyuk, Z. and Yonezawa, H., 2017, June. Trade and FDI-Related Impacts of Brexit: A Worldwide Perspective. In Trabajo presentado en la 20th Annual Conference on Global Economic Analysis, West Lafayette, USA, junior (pp. 7-9).
