However, I still do not see how the UK derogation can extend outside of the UK given that these aircraft are not registered in the UK and their pilots are not within the UK licensing system. It seems to me that if another Member State has not issued a derogation then the requirement applies in their airspace and flights by UK based aircraft will be illegal unless the pilot has an EASA licence.
I think if we were talking about international aviation in the classic sense, you'd be right. But the EU slices and dices it a bit differently in the Aircrew Reg.
Article 8
Conditions for the acceptance of licences from third countries
1. Without prejudice to Article 12 of Regulation (EC) No 216/2008 and where there are no agreements concluded between the Union and a third country covering pilot licensing, Member States may accept third country licences, and associated medical certificates issued by or on behalf of third countries, in accordance with the provisions of Annex III to this Regulation.
Article 12
Entry into force and application
1. This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union. It shall apply from 8 April 2012.
...
4. By way of derogation from paragraph 1, Member States may decide not to apply the provisions of this Regulation to pilots holding a licence and associated medical certificate issued by a third country involved in the non-commercial operation of aircraft specified in Article 4(1)(b) or (c) of Regulation (EC) No 216/2008 until 8 April 2014.
ANNEX III
CONDITIONS FOR THE ACCEPTANCE OF LICENCES ISSUED BY OR ON BEHALF OF THIRD COUNTRIES
A. VALIDATION OF LICENCES
General
1. A pilot licence issued in compliance with the requirements of Annex 1 to the Chicago Convention by a third country may be validated by the competent authority of a Member State.
Pilots shall apply to the competent authority of the Member State where they reside or are established, or, if they are not residing in the territory of the Member States, where the operator for which they are flying or intend to fly has its principal place of business.
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The logic seems to be that because a pilot or operator would apply to the state in which they reside or are established for validation, the that state's derogation applies to the pilot or operator, because the derogation would prevent the pilot or operator from obtaining a validation. The same logic is applied to national licences, which cannot be replaced until the state that issued them gets round to doing so, in which case they must remain valid throughout the EU until then.