Germany: Domestic tax law provisions and Brexit

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Germany: Domestic tax law provisions and Brexit

Linn-Alexander
Braun

Alexander Linn

Thorsten Braun

German companies need to rely on EU law to distribute dividends to UK parent companies free of withholding tax. One obvious consequence of the Brexit would be that EU law, such as the Parent-Subsidiary Directive, would no longer apply. For German entities, this would mean increased withholding tax on dividends paid to UK holding entities since the Germany-UK tax treaty only reduces the rate to 5%.

It should also be noted that German domestic tax law includes references to EU and European Economic Area (EEA) residence. For example, UK subsidiaries earning interest income would potentially be subject to German controlled foreign company (CFC) rules post-Brexit, while they could rely on a substance-test exemption from the rules as long as they are an EU/EEA resident.

Dividends received from UK subsidiaries by German entities will also have to meet certain criteria regarding the activities of the distributing entity to qualify for the dividend exemption from German trade tax. Certain restructurings, such as a hive-down of a German branch of a UK entity into a subsidiary would no longer qualify for rollover relief post-Brexit. There are discussions around potential violations of certain lock-in periods by the mere fact that UK would cease to be an EU member state, e.g. where exit taxes have been deferred in the past, or for a hive-down with a UK entity contributing a branch relying on the rollover relief.

Although the UK will not depart the EU immediately as a result of the June 23 2016 vote to leave the EU, political discussions suggest that the notification to leave under Article 50 of the Treaty on the Functioning of the European Union will be delivered in early 2017. This would trigger a negotiation period of two years, after which (unless extended based on unanimous consent of all EU member states) the UK would be independent of the EU. Taxpayers will need to monitor developments and the negotiations after Article 50 has been triggered by the UK. The developments could potentially require companies to amend existing structures within the two-year period to be prepared for the post-Brexit world.

Alexander Linn (allinn@deloitte.de) and Thorsten Braun (tbraun@deloitte.de)

Deloitte

Tel: +49 89 29036 8558 and +49 69 75695 6444

Website: www.deloitte.de

more across site & shared bottom lb ros

More from across our site

Corporate counsel should combine deep technical knowledge with strategic dynamism, says Agarwal, winner of ITR’s EMEA In-house Indirect Tax Leader of the Year award
Luxembourg’s reform agenda continues at pace in 2025, with targeted measures for start-ups and alternative investment funds
Veteran Elizabeth Arrendale will lead the new advisory practice, which will support clients with M&A tax structuring, post-deal integration, and more
MAP cases keep increasing, and cases closed aren’t keeping pace with the number started, the OECD’s Sriram Govind also told an ITR summit
Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Gift this article