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BREXIT: UK universities should explore setting up subsidiaries in other EU countries to secure research funding

Out-Law Analysis | 01 Aug 2016 | 3:46 pm | 3 min. read

FOCUS: UK universities should consider setting up subsidiaries in other EU countries as a means of safeguarding research funding streams that are at risk following the UK's vote to leave the EU.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Concerns are growing over the extent to which UK higher education institutions will be able to access EU research funding post-Brexit.

The extent of access that the UK will enjoy to funding for research from the EU's Horizon 2020 programme will depend on the terms of the country's exit from the EU which have still to be negotiated. Horizon 2020 is the EU's biggest ever research and innovation funding scheme.

UK institutions should urgently investigate ways to safeguard or replace current sources of EU research funding, including exploring setting up EU-based subsidiaries.

Horizon 2020 funding post-Brexit

UK universities are likely to remain entitled to apply for funding under the Horizon 2020 programme after Brexit, although much will depend on UK-EU negotiations on the terms of the UK's exit from the trading bloc.

Under the current system, applicants from non-EU countries are free to take part in Horizon 2020 projects, though they may not be automatically entitled to its funding.

There are 15 non-EU member nations that take part in Horizon 2020 as associated countries. These include nations that are within the single market as participants in the European Economic Area (EEA) and/or European Free Trade Area (EFTA) and which subscribe to the EU principle of the free movement of workers.

The number also includes 'third' countries that remain outside the EU single market and do not subscribe to freedom of movement within the EU. These countries have varying arrangements with Horizon 2020 and there is no single adopted model.

The extent to which UK-based institutions will have access to Horizon 2020 funds will therefore very much depend on the shape and form of a negotiated deal between the UK and the EU.

Lessons to learn from Switzerland's hybrid model

Under the international agreement associating Switzerland to parts of Horizon 2020, Switzerland participates with an associated country status in actions under a particular 'pillar' of funding.

In all other parts of the Horizon 2020 programme, Switzerland remains a non-associated third country participant. The participation of Switzerland in these parts of Horizon 2020 is set to expire in December 2016.

The EU has published a statement highlighting the requirements that Switzerland must meet to remain eligible for participation in Horizon 2020. In particular, Switzerland will need to ratify free movement to include Croatia, the newest member of the EU. Should Switzerland fail to do so, the agreement associating the nation to parts of Horizon 2020 will be terminated with a retroactive effect as of 31 December 2016.

There is a strong likelihood that should the UK leave the EU and refuse to accept freedom of movement as part of its Brexit negotiations, UK institutions may lose access to Horizon 2020 funding beyond third country status.  

UK universities should consider establishing subsidiaries in other EU countries

It would be prudent for UK-based institutions to consider setting up subsidiaries based in other EU member states as means of safeguarding against the risk of losing funding.

Under Horizon 2020 rules entities that are established within an EU member state are entitled to apply for funding from the EU. Theoretically, therefore it would appear to be possible for a UK university to establish a subsidiary within an EU country and to use that entity as a vehicle to apply for H2020 funding.

Subject to the necessary regulatory approvals and legal and tax approvals, such a subsidiary could also potentially be used for research and teaching activities. This approach would not be without its challenges and universities should seek legal advice as to the options available. Universities should also bear in mind that EU politics may dictate that rules change for the successor to Horizon 2020.

One option may be for universities to establish joint ventures with partner institutions based in the EU and, in doing so, make use of the partner's physical infrastructure. The joint venture entity could be registered within the EU and could potentially be used to apply for Horizon 2020 funding.

Universities should act now

At the moment the position of UK institutions following a departure from the EU is unclear.

Whilst those running the Horizon 2020 programme have stressed that the UK remains a member of the EU and will therefore enjoy the same rights and privileges as it did pre-referendum with regard to participation in EU programmes, UK institutions should urgently investigate ways to safeguard or replace current funding streams.

Martin Priestley is a universities expert at Pinsent Masons, the law firm behind Out-Law.com.