Brexit Tax Accompanying Act: What Taxpayers Need to Know After Brexit

The United Kingdom’s withdrawal from the EU, often referred to as Brexit, was successfully completed on January 31, 2020. After a long period of uncertainty, there is now clarity. The United Kingdom is no longer part of the European Union. To avoid chaos, 2020 is considered a transition period. As a result, not much will change this year. Nevertheless, all individuals and businesses affected by Brexit must use this time to take precautions. Leaving the EU poses significant challenges, particularly for international companies. New laws and trade agreements are just the tip of the iceberg. Tax-wise, too, a lot will change for companies in the future. To ensure that German companies do not suffer any tax disadvantages, the so-called Brexit Tax Accompanying Act was enacted. In this article, taxpayers will learn what this is all about.

What is the Brexit Tax Accompanying Act?

The Act on Accompanying Tax Provisions for the Withdrawal of the United Kingdom from the EU (Brexit Tax Accompanying Act – Brexit-StBG) was passed on March 20, 2019. The Act contains necessary provisions within the purview of the Federal Ministry of Finance. The Act is intended to provide tax guidance for the withdrawal from the EU and the subsequent transition period. The income tax provisions of the Act are intended to prevent Brexit from triggering adverse legal consequences for taxpayers. Nevertheless, companies must have completed all tax-relevant actions before Brexit. The key concept here is “Brexit as a triggering event.”

Which provisions are in effect under the Brexit Tax Accompanying Act?

A wide variety of regulations are or will be relevant in the context of the tax-related handling of Brexit. Taxpayers, and especially business owners, should familiarize themselves with these new aspects. To simplify matters, we have summarized the most important points and presented them as clearly as possible. As tax advisors in Düsseldorf and Oberhausen, we are also your first point of contact for any further questions. The following regulations are relevant under the Brexit Tax Accompanying Act:

• In cases where business shares were contributed by a UK taxpayer or to a UK corporation prior to Brexit or before the end of the agreed transition period at values below fair market value, retroactive taxation of the contribution gain is to be prevented. The Act prevents precisely this situation under Section 22(1) and (2) of the German Corporate Tax Act (UmwStG). Taxpayers therefore do not need to fear retroactive taxation in such cases.
• With Brexit, there is a risk that adjustment items under Section 4g of the Income Tax Act (EstG) must be mandatorily reversed. If such balancing items were established prior to Brexit with the aim of spreading the taxation of hidden reserves triggered by the transfer of assets to a British permanent establishment over a maximum period of five years, the mandatory reversal is prevented by the Brexit Tax Accompanying Act.
• For reinvestments within the EU, the tax on capital gains may be spread over five years upon application pursuant to Section 6b(2a) of the Income Tax Act (EstG). If a replacement purchase is not made, interest is normally charged. Due to Brexit, there is a risk that companies will be subject to this interest. If the application for installment payments was submitted prior to Brexit or within the transition period, the interest is avoided under the Brexit Tax Accompanying Act.
• Provisions are also included in the Brexit Tax Accompanying Act to prevent the consequences of abusive use in certain defined “old cases” and to prevent undue hardship in the context of “Riester” pension subsidies.
• In addition, the Brexit Accompanying Tax Act contains several necessary amendments to the Value-Added Tax Act.

Notes for “Limited” Companies

Companies with the legal form of a “Limited” are also significantly affected by Brexit. Amendments to the Corporate Income Tax Act are intended to provide some relief here. For example, the new Section 12(4) of the Corporate Income Tax Act clarifies that, following Brexit, business assets are to continue to be attributed to the Limited. Initial fears of the disclosure and taxation of hidden reserves have been allayed by the law. Furthermore, the new sentence 4 of Section 12(3) of the KStG specifies that Brexit alone cannot constitute a triggering event under this provision. There are also other specific provisions that cannot be covered in this article. For companies with this specific legal form, detailed consultation with a tax advisor is strongly recommended. Our tax advisors in Düsseldorf and Oberhausen, with their strong industry expertise and years of experience, are the ideal contacts for this.

Any questions? Tax consulting in Düsseldorf and Oberhausen

Brexit can be associated with a great deal of effort and stress for business owners. To ensure that everything runs smoothly for your company after the transition period, tax advice is advisable. Our team of qualified tax advisors and certified public accountants in Düsseldorf and Oberhausen is here to help. During a consultation, you can ask questions and discuss any necessary steps with us. It’s best to schedule an appointment today so you don’t waste any time. Contact us now.