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17 March 2021

Brexit and taxation

Germany adopted the Tax Act Relating to Brexit (Brexit-Steuerbegleitgesetz), which was intended to prevent detrimental legal consequences occurring solely as a result of Brexit for taxpayers who have completed all essential tax-relevant actions prior to the UK’s departure from the EU.

Half of a Union Jack and the sketch of a moneybag enlarge image
Source:  Federal Ministry of Finance

What are the tax implications of Brexit?

The UK’s departure from the European Union means that it has third-country status from a tax perspective, too. As a result, rules for EU/EEA nationals and EU/EEA countries no longer apply to the UK. To prevent any detrimental consequences for taxpayers and companies in matters that have already been largely completed, the Act on Tax-Related Provisions Concerning the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union (“Tax Act Relating to Brexit” for short) entered into force on 29 March 2019.

Because the terms of the UK’s departure were still unclear at that point, the Tax Act Relating to Brexit covers every possible scenario. Various provisions of the Act concern business taxation, and among other things it also contains a grandfather clause for “Riester” incentives.

In any case, the double taxation agreement between Germany and the UK continues to apply. This agreement ensures that income is not taxed twice. The two countries’ tax administrations can also continue to work together.

More on the Tax Act Relating to Brexit

In the Trade and Cooperation Agreement, the UK committed to maintaining the internationally agreed tax standards and not weakening national implementation measures that have already been taken (non-regression clause). This includes a commitment to all 15 actions of the OECD’s project to combat Base Erosion and Profit Shifting (BEPS). The Agreement explicitly mentions central outcomes of international efforts to combat tax evasion, harmful tax competition and aggressive tax planning. The UK has also committed to good governance in the area of taxation. In a political declaration, it pledged to continue to apply the relevant principles to tackle harmful tax practices. The UK and the EU will engage in a regular annual dialogue regarding the implementation of this declaration. These agreements go significantly further than the standards that usually apply in relation to third countries.