Draft law includes measures to protect taxpayers from disadvantageous consequences resulting from Brexit.
On 9 October 2018, Germany’s Ministry of Finance (MOF) issued a draft law that would introduce tax measures to protect German taxpayers from potential negative consequences of the UK leaving the EU (Brexit Tax Implementation Act).
The UK is scheduled to withdraw from the EU on 29 March 2019. This withdrawal date can be extended only by unanimous vote of the EU member states. Such an extension, the conclusion of a withdrawal agreement and the relationship between the UK and the EU following a withdrawal currently are being negotiated between the UK and the EU. The outcome of these negotiations is still unclear.
After the UK leaves the EU without a transition period or a withdrawal agreement (“hard Brexit”), the UK will be treated as a country outside of the EU and no longer will be able to benefit from certain German tax measures that are available only to EU-resident taxpayers. In addition, the withdrawal could have the consequence that certain tax-neutral reorganizations/transfers that take place before Brexit and that require the involvement of EU resident companies or permanent establishments (PEs) and result in blocking periods/tainted shares would become taxable on a retroactive basis. To mitigate the most disadvantageous tax consequences resulting from Brexit, the draft law clarifies that Brexit itself will not constitute a “harmful event” for purposes of certain German tax law provisions.
The measures included in the draft law provided by the MOF can be summarized as follows:
If approved, the draft law would become effective on 29 March 2019. Germany’s upper house of parliament is expected to discuss/vote on the draft law on 19 October.
Contact
Andreas Maywald
Client Service Executive | ICE - German Tax Desk
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