How will Brexit impact the double taxation agreement between Germany and the UK?
The double taxation agreement (DTA) between Germany and the UK, which was concluded in 2010, is part of both the German legal system and the British legal system. It applies regardless of whether or not the UK is a member state of the EU. This means that, even after Brexit, the DTA will continue to prevent the double taxation of income by the two states, and will also continue to facilitate administrative cooperation in tax matters.
What are the tax implications of Brexit?
Once the UK leaves the EU, the UK will be treated as a third country for tax purposes. Tax regulations under EU law that give more favourable tax treatment to EU/EEA states than to third countries will no longer apply to the UK, depending on the specific wording of the respective legislation.
Germany has adopted legislation called the “Act on Taxation-Related and Other Provisions concerning the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union” (short title: Tax Act Relating to Brexit), which took effect in March 2019 (Federal Law Gazette I, p. 357). This legislation is intended to prevent detrimental legal consequences from 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.
How will Brexit impact financial markets and cross-border financial services?
After the UK leaves the EU, relevant financial market legislation that applies to the cross-border business activities of companies based in another EEA state will no longer apply to companies from the UK. This means in particular that, after Brexit, companies conducting financial service transactions between the UK and Germany will no longer be able to use the EU passport established under EU law. If the UK leaves the EU without a deal, it will no longer be possible to provide cross-border financial services without restriction. Therefore, all affected parties – including companies and customers – need to make thorough preparations for the negative effects of a potential no-deal Brexit. The European Commission and the German legislature have adopted rules for such an event in order to safeguard financial stability and ensure the smooth functioning of capital markets.
Detailed information on relevant EU measures is available on the European Commission’s “Brexit preparedness” page.
If the UK leaves the EU without a deal, the Tax Act Relating to Brexit (which took effect in March 2019) gives the Federal Financial Supervisory Authority (BaFin) the power to temporarily extend existing contracts for UK-based banks, insurance companies, financial service providers and payment service providers that have been conducting bank operations or providing financial services in Germany. Such contract extensions may last for an interim period of up to 21 months after the UK withdraws from the EU.
The Federal Financial Supervisory Authority offers English-language information on the implications of Brexit for financial services in Germany (including information for consumers).
How will Brexit impact customs procedures?
If a no-deal Brexit occurs, the customs administration will treat the UK like any other third country that does not have a specific customs agreement with the EU. All customs provisions regulating the movement of goods between third countries and the EU would apply immediately. The most important legislation that applies here is the Union Customs Code (UCC).
Detailed information on the implications of Brexit for customs procedures is available in English here.
Extensive information on these and related issues – including customs, excise duties (indirect taxation), rules of origin and VAT – is also provided by the European Commission.
If the withdrawal deal negotiated between the UK and the EU ends up taking effect and an orderly Brexit occurs as a result, nothing will change in terms of customs law for the next two years. The withdrawal agreement provides for a transition period until at least the end of 2020, during which time EU law will continue to apply.
What specific actions can businesses take now to prepare for Brexit?
The challenges that Brexit poses cannot be met by the public administration alone. Businesses that actively engage in trade with the UK and that wish to continue to do so must likewise make preparations for Brexit. For example, they should check:
- whether their existing authorisations can be modified by a main customs office (e.g. to include additional countries; processing and storage sites in the UK)
- whether they need to apply to a main customs office for new authorisations, in particular the authorisation to operate a temporary storage facility for imported goods (please note that new applications require a certain period for processing)
This means that economic operators who engage in trade with the UK, but who have so far been conducting business exclusively within the internal market and have therefore not yet had dealings with customs, must be aware of the following rules and procedures:
- Economic operators must register with the customs authorities. Upon request, the main customs office with local jurisdiction will issue an Economic Operators Registration and Identification (EORI) number.
- The exchange of information between economic operators and customs authorities (in the form of a customs declaration, for example) generally takes place in electronic form. This is done using ATLAS, an IT system that requires registration and certified software.
- In general, declarants must be resident in the European Union.
- However, it is possible for representatives (such as customs agents) to complete customs formalities.
What has the German customs administration done to prepare for Brexit?
The UK’s departure from the EU will not cause the customs administration to take on any new tasks. German customs authorities are extremely well versed in processing the cross-border movement of goods. However, Brexit will increase the magnitude of this task, and the customs administration expects an elevated volume of clearance and control operations at specific locations.
To prepare for this, the customs administration’s main aim is to ensure that it has the materials and staffing it needs to continue performing these functions effectively at major international seaports and airports and at customs offices in Germany. If a no-deal Brexit occurs, German customs will address this situation by placing a temporary priority on certain tasks and by facilitating these efforts through the flexible deployment of staff and through the IT-supported optimisation of clearance procedures. In addition, Brexit will result in the need for additional staffing. Funding for 900 additional positions is set aside for this purpose in the 2019 Budget Act. These positions will be filled in stages. In addition to training junior staff, German customs will be hiring new employees in all relevant areas of its operations.
How can I contact the German customs administration?
If you have questions on the customs-related implications of Brexit, you can contact:
Where can I find information on the legal situation in the UK?
Information on the legal situation in the UK is available at gov.uk.
What does Brexit mean for VAT?
The Withdrawal Agreement provides for a transition period until 31 December 2020. Under the agreement, transactions with the UK will receive the same VAT treatment during the transition period as they would if the UK were still an EU member state.
After the end of the transition period, the UK will be treated as a third country (i.e. a non-EU country). As a result, the VAT arrangements for trade with third countries will apply from that point on. For example, supplies of goods from the EU to the UK will be treated as exports to a non-EU country, and supplies of goods from the UK to the EU will be subject to import VAT.
Northern Ireland will be an exception, as special arrangements will apply following the end of the transition period. For VAT purposes, Northern Ireland will be treated as if it were part of the EU.
Germany’s Federal Central Tax Office offers detailed information in English on the VAT-related implications of Brexit.