Commercial Awareness Update - January 2020
- By Jaysen
- Commercial Awareness Discussion
- 9 Replies
Hi All,
Welcome to our first commercial update of the year!
California Consumer Privacy Act (By Rachel Strickland)
The Story
The controversial California Consumer Privacy Act (CCPA) came into effect on 1st January 2020 and aims to protect consumers in California from data privacy breaches. The CCPA comes amid increasing global regulation and concern over data mining and the growing ‘AdTech’ industry, where businesses use consumer’s online information to provide targeted advertising.
The CCPA provides consumers the right to know what information businesses (California-based with gross revenue over $25 million, or with more than 50,000 customers, or whose revenue is 50% or more based on user data) have collected on them and the right to have this information deleted upon request. The CCPA also provides clearer ‘opt-out’ rights and companies must include a ‘Do Not Sell My Personal Information’ link on their websites. Fines for an individual violation will be up to $7,500, however, the California Attorney General’s office will not take any enforcement action until 1st July 2020, giving companies greater leeway to integrate these new terms into their business models.
Impact on Businesses and Law Firms
Firstly, the broad scope of personal information covered by the CCPA means law firms will need to advise businesses on compliance. For example, businesses will likely need to evaluate their data privacy management and relationships with third-party data processors, update websites, train staff and mobilise teams to respond to requests. Having worked on the development of the CCPA, international firms like DLA Piper can market their Data Privacy Team, while Orrick offers ‘CCPA Readiness Assessments’. Similarly, as law firms are investing heavily in technology to better serve clients, more CCPA specific services are likely to be developed.
Secondly, the United States has long been perceived as more prone to litigation however BCLP also reported that the District Court of California is the most popular for data breach lawsuits globally. Increased consumer rights will increase the chance of litigation for businesses which may mean financial and reputational costs, and law firms may choose to expand their litigation practice accordingly.
Google's Tax Loophole (by Heerim Hwang)
The Story
Google started off 2020 with an announcement that it will no longer use the controversial "Double Irish with a Dutch sandwich" tax loophole - a technique which will be phased out by 2020 following heavy scrutiny of the Irish government by the US and France.
Google used the tax strategy for its intellectual property licensing structure for years to avoid US taxes on its international profits. Going forward, Google’s IP will be licensed from the US.
Google moved taxable income generated by royalties outside the US from its operating company in Ireland to its Dutch holding company to avoid Irish withholding taxes. The earnings were finally moved to Google Ireland Holdings, an Irish registered shell company with licensing rights based in Bermuda - a tax haven where there is no corporate income tax. Reportedly, Google channelled USD$24.5 billion in 2018 using this.
Impact on Businesses and Law Firms
In addition to the technique being phased out, the Trump administration's Tax Cuts and Jobs Act offered an attractive 21% corporate tax to Google’s current tax rate of 23%. By licensing Google’s IP from the US, the tech company simplifies its corporate structure in line with the OECD’s (Organisation for Economic Co-operation and Development) proposals to introduce stricter international tax regulations on avoidance.
At the same time, significant efforts have been made in Europe to tax internet giants. For example, in July 2019, the French parliament passed the “GAFA bill” (Google, Apple, Facebook, and Amazon) which imposed a 3% additional tax on internet heavyweights.
Italy, Austria, and the UK have also introduced their own Digital Services Tax (DST). However, these have been put in place as an interim following failed attempts by the EU and OECD to reach a multilateral solution.
Tax lawyers will be crucial in guiding clients to compliance through the new and highly varied legislation which is likely to change rapidly in the near future. Currently, there is uncertainty over the scope of a “digital service”. The financial services sector, for example, offers online products along with other services and will be particularly concerned with the exemptions offered by the DSTs.
The Increase in the UK National Wage (by Alice Manners)
The Story
Last week the Prime Minister announced that the National Living Wage (“NLW”) will rise by 6.2% from April 2020. This will see the minimum wage for those aged over 25 increase from £8.15 to £8.72 (amounting to £930 a year for a full-time employee on the NLW).
This still falls short of the “real living wage” which is £10.75 in London, and £9.30 outside, but is described by Boris Johnson as the “biggest ever cash boost” to the legal pay floor.
The National Minimum Wage (for under 25’s) will also rise by varying degrees, from 4.6% for 18-20 year olds to 6.4% for apprentices.
Impact on Businesses and Law Firms
Raising the wage floor by almost double the rate of inflation will likely lead to a reduction in profits for some companies and could affect businesses’ training and investment budgets. This risk is particularly relevant given the pressure companies are currently facing in an increasingly uncertain economy.
Whilst the rise may not impact the majority of law firms’ employees, businesses curtailing their spending could mean less work for corporate lawyers. However, a possible rise in offshoring could mean legal services are required. Furthermore, if the rising NLW does put jobs at risk of automation, as is feared by some, law firms may assist clients as they invest in and navigate technology.
Businesses could also alter their employment structures, adopting zero-hour contracts or classifying workers as self-employed, to lower the costs created by employee benefits and allow the flexibility to reduce expenditure when necessary.
Companies may also consider redundancies. The Low Pay Commission in their 2019 report found little evidence of the NLW significantly affecting unemployment trends to date. However, the NLW has not been in place during an economic downturn and a response like this could be necessary if employers do not have the flexibility to respond to these circumstances. The effects on employment may be particularly prevalent in the already suffering retail sector.
Welcome to our first commercial update of the year!
California Consumer Privacy Act (By Rachel Strickland)
The Story
The controversial California Consumer Privacy Act (CCPA) came into effect on 1st January 2020 and aims to protect consumers in California from data privacy breaches. The CCPA comes amid increasing global regulation and concern over data mining and the growing ‘AdTech’ industry, where businesses use consumer’s online information to provide targeted advertising.
The CCPA provides consumers the right to know what information businesses (California-based with gross revenue over $25 million, or with more than 50,000 customers, or whose revenue is 50% or more based on user data) have collected on them and the right to have this information deleted upon request. The CCPA also provides clearer ‘opt-out’ rights and companies must include a ‘Do Not Sell My Personal Information’ link on their websites. Fines for an individual violation will be up to $7,500, however, the California Attorney General’s office will not take any enforcement action until 1st July 2020, giving companies greater leeway to integrate these new terms into their business models.
Impact on Businesses and Law Firms
Firstly, the broad scope of personal information covered by the CCPA means law firms will need to advise businesses on compliance. For example, businesses will likely need to evaluate their data privacy management and relationships with third-party data processors, update websites, train staff and mobilise teams to respond to requests. Having worked on the development of the CCPA, international firms like DLA Piper can market their Data Privacy Team, while Orrick offers ‘CCPA Readiness Assessments’. Similarly, as law firms are investing heavily in technology to better serve clients, more CCPA specific services are likely to be developed.
Secondly, the United States has long been perceived as more prone to litigation however BCLP also reported that the District Court of California is the most popular for data breach lawsuits globally. Increased consumer rights will increase the chance of litigation for businesses which may mean financial and reputational costs, and law firms may choose to expand their litigation practice accordingly.
Google's Tax Loophole (by Heerim Hwang)
The Story
Google started off 2020 with an announcement that it will no longer use the controversial "Double Irish with a Dutch sandwich" tax loophole - a technique which will be phased out by 2020 following heavy scrutiny of the Irish government by the US and France.
Google used the tax strategy for its intellectual property licensing structure for years to avoid US taxes on its international profits. Going forward, Google’s IP will be licensed from the US.
Google moved taxable income generated by royalties outside the US from its operating company in Ireland to its Dutch holding company to avoid Irish withholding taxes. The earnings were finally moved to Google Ireland Holdings, an Irish registered shell company with licensing rights based in Bermuda - a tax haven where there is no corporate income tax. Reportedly, Google channelled USD$24.5 billion in 2018 using this.
Impact on Businesses and Law Firms
In addition to the technique being phased out, the Trump administration's Tax Cuts and Jobs Act offered an attractive 21% corporate tax to Google’s current tax rate of 23%. By licensing Google’s IP from the US, the tech company simplifies its corporate structure in line with the OECD’s (Organisation for Economic Co-operation and Development) proposals to introduce stricter international tax regulations on avoidance.
At the same time, significant efforts have been made in Europe to tax internet giants. For example, in July 2019, the French parliament passed the “GAFA bill” (Google, Apple, Facebook, and Amazon) which imposed a 3% additional tax on internet heavyweights.
Italy, Austria, and the UK have also introduced their own Digital Services Tax (DST). However, these have been put in place as an interim following failed attempts by the EU and OECD to reach a multilateral solution.
Tax lawyers will be crucial in guiding clients to compliance through the new and highly varied legislation which is likely to change rapidly in the near future. Currently, there is uncertainty over the scope of a “digital service”. The financial services sector, for example, offers online products along with other services and will be particularly concerned with the exemptions offered by the DSTs.
The Increase in the UK National Wage (by Alice Manners)
The Story
Last week the Prime Minister announced that the National Living Wage (“NLW”) will rise by 6.2% from April 2020. This will see the minimum wage for those aged over 25 increase from £8.15 to £8.72 (amounting to £930 a year for a full-time employee on the NLW).
This still falls short of the “real living wage” which is £10.75 in London, and £9.30 outside, but is described by Boris Johnson as the “biggest ever cash boost” to the legal pay floor.
The National Minimum Wage (for under 25’s) will also rise by varying degrees, from 4.6% for 18-20 year olds to 6.4% for apprentices.
Impact on Businesses and Law Firms
Raising the wage floor by almost double the rate of inflation will likely lead to a reduction in profits for some companies and could affect businesses’ training and investment budgets. This risk is particularly relevant given the pressure companies are currently facing in an increasingly uncertain economy.
Whilst the rise may not impact the majority of law firms’ employees, businesses curtailing their spending could mean less work for corporate lawyers. However, a possible rise in offshoring could mean legal services are required. Furthermore, if the rising NLW does put jobs at risk of automation, as is feared by some, law firms may assist clients as they invest in and navigate technology.
Businesses could also alter their employment structures, adopting zero-hour contracts or classifying workers as self-employed, to lower the costs created by employee benefits and allow the flexibility to reduce expenditure when necessary.
Companies may also consider redundancies. The Low Pay Commission in their 2019 report found little evidence of the NLW significantly affecting unemployment trends to date. However, the NLW has not been in place during an economic downturn and a response like this could be necessary if employers do not have the flexibility to respond to these circumstances. The effects on employment may be particularly prevalent in the already suffering retail sector.
