For many international groups, flexibility to move businesses, personnel, and assets cross border can be important to react to commercial changes and new opportunities.  Unfortunately, many jurisdictions impose corporate migration or exit charges when valuable assets or businesses are transferred out of their jurisdiction.

This is perhaps understandable, to protect tax revenues and avoid artificial transfers designed to take advantage of different tax systems, where such transfers are driven by tax rather than commercial motives.

The ECJ has recently upheld in the National Grid Indus decision that the imposition of an exit tax is not, of itself, contrary to EU law.  This will be good news for the large number of countries in Europe which currently impose such an exit charge.

However, following the National Grid Indus case, the majority of exit tax regimes around Europe will now need to be amended to permit payment of any exit charge to be deferred until the gain to which it relates is in fact realised, to be fully compliant with EU law.

This is likely to create a number of difficult questions for member states, who will need to review their exit charge legislation to ensure fully compliant and consider whether security should be provided for deferral and how to enforce payment.

International businesses that are, or may wish to, move businesses, services or personnel for operational, structural or indeed improve overall tax efficiency, should therefore consider quite carefully what movements can take place in a tax efficient way and the timing of such proposals; it is possible that delay may enable the benefit of a deferral or relaxation of exit charge rules to be obtained.

Alternatively, in relation to those countries which do not currently pose an exit charge, implementation of such proposals now may avoid the application of an exit charge before such charges are introduced as part of an austerity programme to increase tax revenues or to ensure broad consistency of treatment within the EU.

Further detail of the ECJ decision in National Grid and each countries approach to exit tax is available below.

What is an exit tax?

Exit taxes are home-state tax provisions triggered by a change in tax residence, or the move of taxable assets, from the home state to another jurisdiction. Exit taxes can be imposed on individuals and corporates; some jurisdictions impose one or other, some have both.  We cover only corporate exit tax regimes here.

How does EU law affect exit taxes?

The right to impose and collect taxes is one of the hallmarks of sovereignty. EU member states have, in general, retained this right and are free to define the scope of their taxation powers so long as the exercise of those powers is consistent with EU law. However the imposition of exit taxes by member states has been criticised for falling foul of the freedom of establishment, in Article 49 of the Treaty on the Functioning of the European Union (TFEU). Such taxes may also infringe Article 54, which provides that companies formed in accordance with the laws of a member state and having their registered office, central management or principal place of business within the EU are to be treated, for the purposes of Article 49, in the same way as natural persons who are nationals of member states. A breach of the freedom of establishment can be justified by “overriding reasons of public policy” and any restriction must be proportionate.

In 2007 the Commission of the European Union issued a communication on the need for co-ordination of member states’ exit taxes, and in 2008 the Council of the European Union passed a resolution on coordinating exit taxation. Since then a string of judgments by the Court of Justice of the European Union (ECJ) including the recent case of National Grid Indus BV v Inspecteur van de Belastingsdienst Rijnmond/kantoor Rotterdam (Case C-371/10) and proceedings brought by the Commission against various member states have caused many countries to review their exit tax regimes.

Netherlands/National Grid Indus

National Grid Indus BV (the company) is a company incorporated in the Netherlands and was, until 15 December 2000, effectively managed there. On that date, the company transferred its place of effective management to the UK and as a result was required, under Dutch law, to pay tax on any unrealised chargeable gains. At the time of the transfer the company owned a loan receivable from National Grid company plc, a UK incorporated company, for approximately £33 million. Due to movements in the exchange rate between the two countries, the company had made a substantial unrealized foreign currency gain in respect of the receivable. The Dutch tax authorities attempted to charge tax on the amount of the unrealized gain, and the company appealed to the Amsterdam Regional Court of Appeal, which referred a number of questions to the ECJ.

Dutch law differentiated between companies transferring their effective place of management within the Netherlands and companies transferring their effective place of management to another member state. The ECJ held that this difference created a restriction on the freedom of establishment. However, it held that the restriction was justified by overriding reasons of public policy, being the preservation of the allocation of taxing powers between member states. It found also that the Netherlands’ authorities were not obliged to take account of any future losses in calculating the taxable gain (in this case, the foreign exchange gain disappeared as a result of the migration).

However the Netherlands laws were not found to be fully EU-compliant; the ECJ held that providing for the immediate recovery of an exit tax, without the possibility of deferral, was not proportionate and could not be justified. Recognizing the potential administrative burden involved in deferring an exit tax charge, the ECJ suggested that to be proportionate, national laws should offer a choice of immediate payment and deferral.



Until 12 January 2009 the transfer of a Belgian company’s place of effective management to another (European) country was, for Belgian tax law purposes, treated as a liquidation. As a consequence, the surplus of the sums distributed in cash, in securities or otherwise, on the re-valued paid-up capital was treated as a distributed dividend giving rise to a withholding tax of 10%. As a result of a change in legislation, an exemption from this charge was introduced in 2009. The exemption applied where a European Company (SE) or European Cooperative Society (SCE) transferred its place of management to another EU Member State. However, this tax exemption was limited to:

  • the assets that remained (after the transfer of the company) to be used in a Belgian permanent establishment of the company and that contributed to the results of this permanent establishment;
  • the tax-exempt reserves in existence before the transfer of seat, on the condition that they qualified as equity of the Belgian permanent establishment.

If the conditions above were not met, the transfer would still be treated as a liquidation and, as stated above, the surplus of the sums distributed in cash, in securities or otherwise, on the re-valued paid-up capital would be treated as a distributed dividend giving rise to a withholding tax of 10%.

On 18 March 2010 the Commission sent an official request to Belgium to change its corporate exit tax provisions.  To comply with this request, the Belgian authorities increased the scope of the exemption set out above, so that it applies to all Belgian companies transferring their place of management to another EU Member State with effect from 1 January 2011.  As a result, the European Commission closed its proceeding against Belgium on 29 September 2011.

Compliance with EU law

Despite these amendments, the Belgian exit tax regime still fails to comply with the freedom of establishment as guaranteed by Articles 49 and 54 TFEU. As a result of the ECJ’s decision in  National Grid, the lack of an ability to defer payment of an exit tax charge in the Belgian legislation (in the event that the exemption does not apply) may be considered an unjustified limitation of the freedom of establishment.

In addition, it should also be noted that the tax treatment of corporate immigration and emigration under Belgian legislation is inconsistent since, on exit, tax is calculated on the market value of the transferred assets whereas on entry, the value of its assets is treated as being equal to its book value.

There is currently no case pending before the European Court of Justice in relation to the Belgian exit tax regime but, given its inadequacies in light of recent developments, further activity in this area may be expected.



Companies are subject to an exit tax in Denmark in two situations:

  1. Transfer of management abroad will be treated as a sale, at market value, of the company's assets unless they continue to be subject to Danish taxation (i.e. remain part of a permanent establishment in Denmark).
  2. Transfer of assets within a company to a permanent establishment or head office in another state will be treated as a sale at market value.

The tax liability arises at the time of the transfer and the tax is collected immediately. There is currently no regime for deferring payment of exit tax in Denmark.

Compliance with EU law

On 26 May 2011 the European Commission brought an action against Denmark (Case C-261/11) for failure to fulfil its obligations under Article 49 TFEU and Article 31 of the EEA Agreement.

Under Danish tax legislation, the transfer of a company's assets for use outside Denmark is regarded as a sale and is taxed accordingly, whereas the ownership of assets by a company within the country is regarded as ceasing only when the assets in question are actually sold.  A company which transfers assets between different establishments within Denmark is thus not taxed on the value of those assets as a result of such a transfer whereas a company which transfers assets to a permanent establishment outside Denmark will immediately pay tax on the value of the assets in the same way as if the assets had been sold.

The Commission argued that this difference in treatment constitutes an obstacle to the freedom of establishment, contrary to Article 49 TFEU.  It accepts Denmark's ability to impose tax on increases in value which occur while a company is established in Denmark but finds that the circumstances in which the tax liability arises should be the same regardless of whether the capital values concerned are transferred abroad or remain in Denmark.  In the Commission's view, there is no reason for tax arising on the transfer of assets from Denmark to another EU state to be collected immediately if such a tax is not imposed in equivalent national situations.  Denmark could alternatively, for example, determine the amount of the unrealised gains which it considers it has the right to tax, without requiring the immediate payment of tax or imposing further conditions for deferring payment.

In the Danish government's view, the prevailing rules on corporate exit taxation are consistent with Article 49 TFEU.  It argues that the Danish exit tax regime can be justified by the need for a balanced allocation of taxation powers between the member states, and that collecting taxes immediately after the transfer of management or assets represents the least intrusive means of ensuring a balanced allocation of taxation powers.  It remains to be seen whether there is any change to this position following National Grid.


French exit tax legislation only affects individuals.  Unusually, there is no similar regime for corporate bodies.



Under German tax law, transactions that preclude or restrict the German tax authorities’ right to tax the profit derived from an asset's sale or use generally trigger an immediate liability to taxation of such (virtual) profits, regardless of whether such profits are actually realized or not.  Such taxation can be triggered when a corporate entity moves its place of management and its assets out of Germany.  Taxation is not triggered, however, to the extent assets remain in a German permanent establishment.

It is possible under certain conditions to defer the tax liability by paying it in five equal annual instalments, starting in the year in which the transaction has taken place.  Liabilities deferred in this way do not currently attract interest and there is no requirement to provide security for the unpaid tax.

The German Ministry of Finance has recently published a list of proposed amendments to German tax legislation.  The list proposes to make the deferral of exit taxation subject to the payment of interest and / or the provision of collateral.  However, the draft tax legislation for 2013 does not currently contain any provisions to effect this.

Compliance with EU law

German tax experts have expressed doubts whether the current exit tax regime, in providing for only a five year pro rata deferral (instead of deferral until realization) is in compliance with the ECJ ruling in National Grid.

In January 2012 the Hamburg tax court submitted a request for preliminary ruling to the ECJ.  The request concerns a provision applicable to reorganizations which is no longer in force but which is comparable to the current German corporate exit tax.  The ECJ ruling in that case pending under case number C-164/12 is expected to provide more clarity regarding the compatibility of the current German exit tax regime (and in particular on the questions of a limited deferral period, interest and security) with EU law.



An exit tax has existed in Ireland since 1997.  Where a company ceases to be tax resident in Ireland, it is deemed to have disposed of and re-acquired all of its chargeable assets at market value immediately prior to the change of tax residence.  This has the consequence of crystallising any gain or loss inherent in these assets, at a time when the company is tax resident in Ireland and within the charge to Irish capital gains tax on its worldwide assets.  Accordingly, a capital gains tax charge will arise at the date of deemed disposal.

A company is not regarded as ceasing to be tax resident by reason only of it ceasing to exist, for example by way of liquidation or strike-off.  In addition, the charge does not apply to an “excluded company”, being one at least 90% of the issued share capital of which is held by a foreign company.  A “foreign company”, for this purpose, means (broadly) one with which Ireland has concluded a double tax agreement and which is not under the control of a person resident in Ireland.  Also, the deemed disposal will not apply to any assets situated in Ireland which, immediately after the change of tax residence, are used by the company through a branch or agency for the purposes of a trade carried on in Ireland.

Where a company which has transferred its tax residence fails, within 6 months of the due date, to pay any exit tax charge which is due, the Irish tax authorities may issue a notice to (broadly) a group company or a controlling director of the migrating company, requiring them to pay the tax due within 30 days.  Any amount which is payable by virtue of a such a notice may be recovered from that person as if it were a tax due by that person and any payment made pursuant to such notice cannot be deducted in computing any income, profits or losses for tax purposes.

Deferral of exit tax charge in respect of foreign assets

Companies (other than excluded companies) may be able to defer part of the exit tax charge arising on the deemed disposal of foreign trading assets.  The option to defer is available where:

  • immediately after the change of residence, the company is a direct 75% subsidiary of an Irish tax-resident company (the “principal company”); and
  • both companies jointly elect in writing to the Irish tax authorities, within 2 years of the change in tax residence, for a deferral of the exit tax charge in relation to foreign trading assets.

As a result of the joint election, foreign trading assets of the migrating company are excluded from the deemed disposal provisions, so neither a chargeable gain nor allowable loss arises in respect of those assets.  Instead, the net gain on the foreign trading assets (i.e. the chargeable gains less allowable losses which would have arisen on the foreign trading assets had they been deemed to be disposed of) will be deemed to accrue to the principal company if, within ten years of the date of migration

  • the migrating company disposes of any of the foreign trading assets in question. In this case, only a proportion of the original net gain is deemed to accrue;
  • the migrating company ceases to be a direct 75% subsidiary of the Irish principal company; or
  • the principal company ceases to be tax resident in Ireland.

If none of the 3 events described above occur within 10 years, the exit tax charge falls away.  Where any of the events described above occur within the 10 year period, the charge crystallises and the postponed net gain is deemed to accrue to the principal company.  Any allowable losses available to the principal company at that time can be used to reduce the net gain.

The principal company may also use any allowable losses of the migrating company which arose prior to it becoming non-resident, provided that both the principal company and the non-resident company jointly elect in writing to the Irish tax authorities to do so. The election must be made within 2 years of the event giving rise to the crystallisation of the postponed gain.

Compliance with EU law

On 27 January 2011, the European Commission formally requested, by way of reasoned opinion, that Ireland amend its exit tax provisions on the basis that they were incompatible with the principle of freedom of establishment.  A formal response to the reasoned opinion was submitted to the European Commission on 30 March 2011, and the matter now rests with the Commission.



Before 2012, the transfer abroad of a company’s residence was treated as the disposal of the assets of the business at market value, unless the assets were allocated to a permanent establishment in Italy.  This rule was challenged by the European Commission, as being in breach of the freedom of establishment pursuant to TFEU.  The rule was found by the ECJ to be contrary to the TFEU insofar as it provided that companies, which intended to relocate to another member State, were subject to immediate taxation if they did not allocate the assets of the business to a permanent establishment in Italy.

New legislation, introduced on 24 January 2012, has amended Italy’s corporate exit tax rules so that any exit tax may be deferred until such time as any gains are actually realised.

Compliance with EU law

Italy’s new legislation has been drafted with consideration of the principles established by National Grid.  As such, it is expected that the new regime will comply with EU law.

Issues with an EU-compliant corporate exit tax

Further legislation will be issued to enact the proposed changes; such legislation is expected to set out the criteria for the determination of the tax payable, the method of payment and provide that the collection of the tax will be deferred until such time as the assets have actually been sold.

However, it may prove difficult for the Italian tax authorities to trace assets sold in another jurisdiction by a non-resident company, particularly where there is a considerable delay between the company’s emigration and the disposal of its assets.  It is possible that the new legislation will require companies wishing to defer payment to provide a guarantee for the tax due; without knowing when the relevant assets will be sold, taxpayers will effectively be giving an open-ended guarantee and this could prove particularly burdensome.  Additionally, if the tax liability arises at the point at which the company migrates, and only its payment is postponed, interest is likely to be payable on the unpaid tax.

Similarly, the obligation on a company to identify assets, the sale of which gives rises to an exit charge will be an administrative burden.  Companies which own a large number of low-value assets, the subsequent sale of which will need to be carefully monitored in order to avoid breaching the rule, may find the new regime particularly onerous.  To alleviate this, it is hoped that the additional legislation will provide for a “partial” option – authorities speculate that the tax authorities may allow companies to pay the tax liability on certain assets (where there is a high volume of assets which individually have a low value) and to defer payment on large assets which can be easily traced.


In Poland no exit tax is charged on a company which changes its place of management from one country to another. (A transaction which involves the liquidation of a Polish company would attract taxation of any liquidation profits in the normal way.)  Also, no tax is imposed when a company or part of its business is moved to another jurisdiction – such a transaction is liable to transfer tax in the normal way, as would be the case with a domestic sale of a company or part of its business.

There is no indication that the Polish government intends to introduce such a tax, although any changes to tax legislation for 2013 have yet to be published.



Spanish tax law has an exit charge regime which provides for the taxation of unrealized income and capital gains on the following circumstances:

  1. when a company which is tax resident in Spain transfers its effective place of management (i.e. its tax residence) abroad (either to an EU Member State or to a third country);
  2. when a Spanish permanent establishment of a non-resident entity (either resident in a EU Member State or in a third country) ceases its business activity in Spain;
  3. when a Spanish permanent establishment of a non-resident entity (either resident in a EU Member State or in an third country) transfers its assets abroad.

Where a company transfers its effective place of management abroad, if the relevant assets are attributed to a Spanish permanent establishment, the exit charge regime will not apply. This means that payment of Spanish corporation tax will be deferred until the relevant assets are sold.  In such a case the relevant assets remain valued at historical values for tax purposes.

There is no specific mechanism to defer payment of the exit charge. The standard payment extension regime applies (meaning that interest will be due on any deferred payment and that appropriate guarantees will have to be filed with the Spanish tax authorities).

Compliance with EU law

The European Commission has referred Spain to the ECJ in relation to its exit charge regime, and the proceedings (Case C-64/11) are still in progress. The European Commission considers that the Spanish exit charge regime constitutes a disproportionate restriction to the freedom of establishment.


Switzerland does not have an exit tax regime. Under Swiss law, the transfer of a company’s residence abroad is treated in the same way as a liquidation. The tax authorities calculate the company’s net assets and assume that those assets are distributed to the shareholders.  These distributions, reduced by the shareholders’ capital contributions, will be subject to federal withholding tax at the rate of 35%. However the tax paid can frequently be recovered under the terms of the double taxation treaty between Switzerland and the company’s new country of residence.


Like Ireland, the United Kingdom has an exit tax regime under which, when a company transfers its tax residence abroad, a deemed disposal and reacquisition of the company’s chargeable assets takes place, giving rise to a chargeable gain. Similar charges are imposed on any gains made on a company’s loan relationships and any intangible property.

The rules do not apply to a company which ceases to exist or which, despite migrating abroad, continues to use the assets in a UK trade or otherwise for the purposes of a UK permanent establishment.

Where a company which has transferred its tax residence fails, within 6 months of the due date, to pay any exit tax charge which is due, the UK tax authorities may issue a notice to (broadly) a group company or a controlling director of the migrating company, requiring them to pay the tax due within 30 days. Any amount which is payable by virtue of a such a notice may be recovered from that person as if it were a tax due by that person and any payment made pursuant to such notice cannot be deducted in computing any income, profits or losses for tax purposes.

The UK also has a strict administrative process under which a migrating company is required to provide the UK tax authorities with notice of any intention to migrate, the intended date of migration, the expected amount of tax payable, and details of the arrangements for payment of that tax. Failure to comply with these rules may trigger a penalty up to the amount of the tax due, which can be imposed on the migrating company, any company which controls the migrating company, or a director of either company.

Deferral of exit tax charge by subsidiaries of UK resident companies

An election to defer the charge can only be made where a UK resident company (the principal company) directly owns at least 75% of the shares in the migrating company, and both companies make a joint election to the UK tax authorities within 2 years of the migration. If, having made an election to defer the liability, the assets in respect of which the gain was deferred are disposed of by the migrating company within the next six years, or at any time the principal company disposes of its shares in the migrating company or ceases to be UK resident, the principal company will become liable to tax on the deferred gain.

Losses of both the principal company and the migrating company (in the latter case, provided that a joint election is made to the UK tax authorities within two years of the gain accruing to the principal company) can be used to reduce the chargeable gain.

Compliance with EU law

Following National Grid, on 22 March 2012 the European Commission formally requested the UK, by way of a reasoned opinion, to amend its exit tax provisions, on the basis that they are incompatible with Article 49 TFEU. The UK now has two months in which to respond, failing which the Commission may refer the case to the ECJ.