The dreaded Brexit is approaching. In just over two months' time, the possible withdrawal of the United Kingdom from the European Union is imminent, and there are still uncertainties and uncertainties. We have already informed about the tax consequences and possible design alternatives at the Limited level in previous articles. In the following article, we would therefore like to inform you about a possible exit tax according to § 6 AStG at the shareholder level.

Does Brexit trigger an exit taxation?

1.1 Taxation of natural persons without holdings in corporations

A natural person remains in accordance with § 2 para. 1 Foreign tax law also after the departure from Germany for ten years unrestrictedly taxable, if the latter moves to a country with a lower taxation and the natural person was unrestrictedly taxable as a German for at least five years before the end of the unrestricted tax liability.

Defined as a low-tax country § 2 para. 2 No. 1 AStG Countries in which the income tax arising there is more than a third lower than it would be for a single person resident in Germany with a taxable income of 77,000 euros.

The British income tax rate is regularly high enough not to move to a country with a lower taxation acc. § 2 Abs. 2 No. 1 of the AStG. [] 1]

It should be noted that § 2 AStG according to the wording of § 2 (1) S. 1 AStG only applies if the natural person also has German citizenship. [2] A move to Great Britain thus does not trigger taxation according to § 2 AStG.

If, however, the taxpayer holds shares of more than one percent in one or more corporations, they can be taxed according to § 6 para. 1 AStG in conjunction with § 17 EStG. [3]

On the taxation of departures, the calculation of the tax and strategies for reducing it, we had already informed in previous contributions. With the 2004 ECJ decision on the French exit tax, the regulation was adapted and now offers taxpayers the opportunity to leave the exit tax hours. In making cases, even the partial remission of the tax is possible.

The prerequisite for this is that the taxable person according to § 6 (1) S. 1 AStG was taxable without restriction for a total of at least ten years according to § 1 (1) EStG and whose unlimited tax liability ends as a result of the departure and holds shares within the meaning of § 17 (1) S. 1 EStG. As a share within the meaning of § 17 (1) S. 1 EStG, the indirect or direct participation in at least one percent of the capital of a company belongs.

According to § 6 (1) S. 1 AStG, the shares are deemed to be fictitiously sold and § 17 (1) S. 1 EStG is applicable. Instead of the sale price, in the absence of actual sale, the common value occurs according to § 6 (1) S. 4 AStG.

It is irrelevant whether Germany actually loses the right to tax the shares. [4] The background for the taxation according to § 6 AStG is that Germany regularly, in derogation from § 49 (1) no. 2e EStG, the taxation right to profits according to § 17 EStG acc. Article 13 (5) of the OECD Model Agreement loses. [5] The double taxation agreement with the United Kingdom does not derogate from Article 13(5) of the OECD Model Agreement.

1.2.1 Application for tax deferral after Brexit

The taxpayer is granted the opportunity to pay the arising tax of § 6 (1) AStG without security and without interest in accordance with § 6 (5) S. 1 AStG, if the taxpayer is a national of a Member State of the European Union or a country of the European Economic Area and he is subject to unlimited tax liability after moving to one of the mentioned states. After the withdrawal of Great Britain from the European Union and the associated treatment as a third country, the tax deferral of § 6 (5) AStG can no longer be granted. [] 6]

On request, it would be possible to defer the tax according to § 6 (4) AStG over a period of five years, in which case the taxpayer has to provide security payments, the tax is to be repaid in five instalments that are the same annually and the soon payment would constitute a considerable hardship for the taxpayer. [7] Significant hardness is an indeterminate legal concept,[8] as a rule this is present in the absence of liquid funds of the taxpayer. [9]

If the taxpayer applies for deferral pursuant to § 6 (4) AStG, interest pursuant to § 234 AO arises on the deferred tax, since § 6 (4) AStG does not provide for deferral without interest as provided in the following paragraph 5. The taxpayer can choose all the securities allowed in § 241 AO, other securities are only suitable with the approval of the tax authority. [] 10]

1.2.2 Application for tax deferral before Brexit

It is legally unclear to what extent a deferral already granted before the withdrawal of Great Britain from the European Union according to § 6 para. 5 AStG is to be treated. The deferral granted shall be revoked if a feature of § 6 Abs. 5 pp. 4 no. 1 to 4 AStG is fulfilled. [] 11]

The deferral is therefore to be revoked according to § 6 para. 5 S. 4 No. 1 AStG in the case of sale or hidden contribution into a company or pursuant to § 6 Abs. 5 S. 4 No. 2 AStG in the case of a transfer to a non-unlimited taxable person who is not subject to a tax liability comparable to the German income tax liability in a Member State of the European Union or a state of the European Economic Area, according to § 6 para. 5 S. 4 No. 3 AStG after a withdrawal of the shares or a comparable transaction which leads to partial value or recognition of the common value under domestic law or also pursuant to § 6 Abs. 5 S. 4 No. 4 AStG, if the taxpayer gives up his residence or habitual residence and no longer has a tax liability according to sentence 1 of § 6 Abs. 5 AStG.

With the withdrawal from the European Union and the legal classification of Great Britain as a third country, none of the facts that would justify a revocation of the deferral are fulfilled.

If at all, the approach of § 6 para. 4 S. 4 No. 4 AStG, by imposing a residence obligation and thereafter no longer being an unlimited tax liability – neither in a country belonging to the European Economic Area nor in a Member State of the European Union.[12] However, there is no actual departure, which causes an end of the unlimited tax liability in a Member State of the European Union, the unlimited tax liability ends by the withdrawal of Great Britain from the European Union. [] 13]

Accordingly, there is no legal basis for revoking the deferral already granted,[14] the possible consideration of Great Britain as a third country does not in principle justify the revocation of the deferral by revocation. [] 15)

Whether the in § 6 para. 5 S. 4 No. 4 AStG can be fictitiously assumed, will arise only with the case law. Should the opinion of the tax administration be followed by case law, then theoretically at least the deferral according to § 6 para. 4 AStG,[16] whereby the deferral period of five years starts with the departure and the question must be asked here whether this period starts with the actual departure or only with the fictitious departure by the withdrawal of Great Britain.

1.2.3 Clarifying regulation in § 6 para. AStG

In addition, the Brexit Tax Accompanying Act explicitly stipulated that Brexit does not lead to the revocation of the deferral. This regulation is only clarifying, since the deferral is already maintained for the above-mentioned reasons.

Conclusion on the departure before Brexit

If a move to England is planned under abandonment of the German unlimited tax liability and the taxpayer holds shares in corporations with a shareholding of at least one percent, the move before the withdrawal of Great Britain from the European Union makes sense in order to avoid the possibility of tax deferral according to § 6 para. 5 AStG. This is also guaranteed by the new § 6 Abs. 8 AStG. Success of the move after the completed Brexit, is an interest-free tax deferral of § 6 Abs. 5 AStG no longer possible. In this case, only the deferral within the meaning of § 6 Abs remains. 4 AStG, for which deferral interest arises pursuant to § 234 AO. [] 17)