A Brexit would have consequences in almost all areas of tax law. In many areas, it will be a question of whether the UK has at least the status of an EEA country in future. Below is an illustration of some fundamental effects.
First of all, the existing EU Directives will no longer be applicable to the UK following a Brexit. This will result in additional tax burdens as well as in the disappearance of tax privileges.
In particular, the Parent-Subsidiary Directive which provides for complete exemption from taxes at source on dividends and comparable payments will no longer be applicable. Instead the tax at source can at best be reduced to 5% on the basis of the existing double taxation treaty.
Subject to certain preconditions, the Interest and Royalties Directive has thus far granted exemption from the deduction of taxes at source on interest and royalty fees with cross-border payments. Although taxes at source to be withheld are liable to subsequent refund on the basis of the double taxation agreement, there may be a higher administrative workload and time shifts here in affiliated companies, given the future non-applicability of the Directive.
If the UK does not have the status of an EEA country after leaving the EU, the UK will also cease to be in the area of application of the Transformation Tax Act after Brexit, with the result that tax-neutral restructuring measures involving UK companies will no longer be possible in this way. Transformation processes already carried out can be affected to the extent that periods of abstention, that have not yet ended at the time of Brexit, can result in retrospective taxation of the restructuring process.
If assets of a German company were transferred to a place of business in the UK in the past, it was possible to avoid taxation of the hidden reserves through the recognition of a compensatory item. De-recognition of this would be mandatory upon withdrawal from the EU, and would therefore result in taxation.
If a German corporation relocates its registered office or its management to a country outside the EU or the EEA, it will be considered liquidated with resulting taxation on all hidden reserves, meaning that a move to the UK by German corporations can lead to this type of liquidation taxation in future.
A move to the UK by natural persons holding at least 1% of the shares in a corporation, can in future result in departure taxation under the Foreign Tax Relations Act, if the UK is neither an EU member state nor an EEA country. In the case of moves to the UK, already carried out in the past and for which the tax on departure was deferred interest-free, the deferral would then be revoked.
There will be major administrative changes in particular in the field of value added tax. In future, deliveries between Germany and the UK will no longer be tax-free intra-community deliveries for the supplier, but rather (likewise tax-free) export deliveries, which however require other evidence and a different declaration. Applications from UK-based companies for reimbursement of input tax within the scope of the input-tax compensation procedure, will be subject to a shorter application deadline in future (June 30, instead of September 30, of the following year).
Shareholdings of more than 25% in corporations are part of the tax-privileged assets for purposes of inheritance and gift tax. However, this is only the case if they have their real seat or management in an EU or EEA country. As a result, this privileged treatment would no longer be granted in future.
Other aspects that would no longer apply include the privileges envisaged only for EU and EEA countries, such as the cross-border joint assessment of spouses (spouse splitting) and the deductibility of donations to recipients in the UK. Additionally, it may no longer be possible to claim support payments for study and training in the UK against tax in Germany, if the UK is not an EEA country.