If Brexit turns into reality and the UK leaves the EU, current tax benefits associated with EU membership may disappear or may need to be regulated from scratch. We have compiled a number of examples showing the fiscal consequences of Brexit and which areas you should therefore continue to observe during the Brexit process.
One area where action would be required is the disappearance of EU directives once the UK has left the EU. This would affect, for instance, the deduction of withholding tax on dividends, interest and royalties. Also, tax benefits may no longer be available for corporate restructuring.
Furthermore, the controlled foreign corporations rules may be changed. If individuals or legal entities with unlimited tax liability in Germany hold more than 50 percent of a limited liability company that must be seen as an intermediate company, then the German shareholder must be deemed as also receiving passive income from the company, subject to additional requirements (German Foreign Tax Act, AStG, sections 7 and 8). This rule is not applicable if the company is based in an EU or EEA Member State (a so-called ‘test of motivation’, section 8.2 AStG). In the future, such relief may cease to be available for investments in British companies.
Finally, if a business owner has transferred an asset to an operating facility, they would do well to be cautious. After Brexit, if such a transaction involves an operating facility in the UK, the relevant tax adjustment item would have to be treated as an increase in profits.
If you have questions about the possible changes illustrated in these examples, please contact our specialists. We would also be happy to conduct a quick check on the impact of Brexit on your company.