Limited in Germany no longer recognized after Brexit!

date | theme

24. August 2018 | UK-Limited and Brexit: Cross-border merger helps!

November 1, 2018 | Consequence of Brexit 2019: Limited no longer recognized in Germany!

4. November 2018 | Merger after share exchange violates lock period at GmbH & Limited

30. November 2018 | Limited conversion to Brexit: Avoid these 5 mistakes!

December 6, 2018 | Short-term solutions: converting Limited into GmbH (6 possibilities)

29. January 2019 | Limited in Germany no longer recognized after Brexit! (This contribution)

15. March 2019 | Brexit Tax Accompanying Act – Can the UK-Limited still be saved?

11. April 2019 | Brexit extension until 31.10.2019: merger of the Limited to GmbH possible again!

Hard Brexit or soft Brexit? What tax consequences does Brexit have for the incoming Limited? In principle, the legal form of the British Limited is extremely attractive, as it is limited in liability similar to a GmbH and is founded with little capital. Until now, companies have benefited from the European Union's freedom of establishment. As a result, the British Limited with administrative headquarters in Germany has been recognized to date. However, the likely withdrawal of the United Kingdom from the European Union on 29.03.2019 threatens to deprive the legal personality of this legal form, which has significant consequences – especially tax. For this reason, we have written the following scientific contribution to the Limited.

1st Introduction

Every year a large number of new companies are founded in Germany. For 2018, the Federal Statistical Office expects to establish 554,000 companies. [1] This figure covers both larger and smaller holdings as well as secondary holdings. [2] The existing companies as well as the constantly growing companies use all forms of enterprise. When founding in Germany, however, only the German forms of incorporation are used, such as the company with limited liability, the UG (haftungsbeschränkt) or the public limited company. Many companies, on the other hand, already establish themselves in another state of the European Union and then carry out the actual business in Germany. For this purpose, the companies move their effective administrative seat to the country and keep the statutory seat of their company in the country of incorporation. For these companies there is no obligation to register in the German commercial register. Subsequent registration in the domestic commercial register has only a declaratory character for the foreign companies. This means that the registration is only explanatory to the domestic activity. As of January 1, 2018, according to statistics of the Munich Chamber of Commerce, 30,000 companies of the legal form Limited existed in Germany. [3] About 8,000 to 10,000 of these have moved to Germany with their effective administrative headquarters. [4] Private limited company by shares is an English form of corporation. Based on the registered companies of this legal form, it can be seen that this is a popular choice among the founders. Due to the non-compulsory registration in Germany, however, it is only possible to guess how far-reaching the actual share of limited companies in Germany really is.

Great Britain and Northern Ireland are both member states of the 28-member European Community. [5] Since 1957, the European Union community has grown steadily. It is now the case that the members of Great Britain and Northern Ireland wish to leave the Community. But these are not the first states to announce their withdrawal. Already in the history of the European Union, several states such as Algeria and Greenland have left the Community. [6] But the current exit of Great Britain is of enormous concern to the population. Because Britain is probably one of the more influential and economically centered states of the EU. And thus began with the registration of her exit on 29.03.2017 the great sensation about the dreaded Brexit.

The speculation about the course of Brexit and especially about the following time after the exit from the EU is great. Brexit means that Great Britain and Northern Ireland can no longer invoke the laws and agreements made there after their departure from the EU. The impact affects not only the citizens of the United Kingdom but also, above all, foreign companies within the United Kingdom and English companies outside the country. In Germany, there is therefore great concern for the English Limiteds, whose administrative headquarters is located in Germany. This raises the question of what their recognition and the tax and company law consequences will be.

In the following, the main problem areas that will arise as a result of Brexit and the incoming Limiteds will be discussed. How did it even come about that such a large part of English Limiteds is located in Germany. And above all, what possibilities are there to escape the consequences of Brexit and to keep the English Limited with administrative headquarters in Germany. Long before Brexit, there was already a time when Germany did not recognize the limited company law form of the Limited at all. This was confirmed by decisions of the BFH. It was only by invoking the freedom of establishment within the European Community that the ECJ succeeded in recognising newly admitted companies within the Member States following a series of judgments.

After many years of security for the incoming limited companies, Brexit has now been launched through the freedom of establishment in Germany. This raises all previous facts as questions. What will the recognition and treatment of an incoming Limited in Germany look like once the UK is no longer a member of the European Union? As a result of Brexit, the companies concerned will no longer be able to invoke the previous freedom of establishment, which will apparently make them lose their guaranteed limitation of liability. The exit will provoke a fictitious liquidation of the companies, the tax effects of which should not be underestimated.

Each European state determines the treatment of legal persons of its own country. This includes the requirements of the applicable law in the internal and external relationship. In summary, one speaks of a company statute of the country, which determines the aforementioned factors in itself. The predominant statutes are, on the one hand, the sitting theory and, on the other hand, the founding theory. The social statute of the seat theory is linked to the actual seat of the head office of a company.[7] The seat of the head office, or also called administrative seat, is determined at the place from which the company decisions are made and the resulting actions are regulated. Often, the effective administrative seat is defined as the focus of economic activity. [8] Opposite the administrative seat is the registered office of a company. This is also called the statutory seat. The registered office of a company is located in the place determined by the company's statutes. According to the aforementioned definitions, it is thus possible that the place of the administrative seat deviates from the place of the statutory seat. Often, such a deviation takes place only subsequently by the relocation of the administrative seat. If the effective seat of administration is transferred from abroad to Germany, the seat theory consequently leads to the application of German corporate and property law. [9] In the specific case, this means that if an English Limited moves its administrative headquarters from Great Britain to Germany, the Limited is subject to German law and treated accordingly. [10] In addition to Germany, there are other European states that follow the social statute of the seat theory. These include, for example, the German neighbouring states such as Austria, France, Belgium and Luxembourg. In these member states of the European Union, too, the principle is pursued that the prevailing law of the host state must always be applied.

According to the opinion of the BGH on the seat theory, the legal capacity of a society is assessed in the law of the place where its effective administrative seat is located. [11] The BGH defines the effective administrative seat as “the place where the basic decisions of the company management are effectively translated into ongoing management acts”.[12] If the effective administrative seat is located in Germany after relocation from abroad, the change of statutes results in the theoretical inexistence of the new company. [13] Because the newly acquired company is described under German law as “legal nullum”. Neither the legal capacity nor the party capacity becomes part of it.[14] “Party capacity is the ability to be the main or secondary party of a process [...]”.[15] According to § 50 para. 1 Code of Civil Procedure a person is party-capable if he is legally competent. [16] Legal capacity constitutes the capacity to be the bearer of rights and obligations.[17] Accordingly, the fundamental question arises as to whether a newly acceded company has any legal capacity at all after the cross-border transfer of its administrative seat to the country. [18] Insofar as a company transfers its effective administrative seat to a state other than that of the statutory seat, one speaks in the incoming state of the administrative seat of the company of an incoming company.

The main purpose of the seat theory is to protect domestic commerce from companies founded abroad. [19] It is also protective with regard to the interests of creditors.[20] The social statute of the seat theory is based on the "focus of the physical life"[21] of a society and thus effects the effective control of the native territory. [] 22]

2.2. Foundation theory

The social statute of the founding theory is based on the law of the place of founding. [23] This Statute has grown since 18. century in England.[24] Over the years, its occurrence has spread mainly in the Anglo-American legal area. [25] But European states also follow the social statute of the founding theory, such as Great Britain, Spain, the Netherlands, Italy and Denmark. Contrary to the aforementioned seat theory, the founding theory is governed by the applicable law of the state in which the legal person was founded. [26] After completion of the founding process, a change in the choice of law is no longer possible.[27] The company is bound by the choice made for the duration of its existence; a change would require the dissolution and re-establishment of the company. [28] The founding theory is therefore not legally mobile, but it is actually mobile. In concrete terms, this means that, in the case of an English Limited, the country of Great Britain, which pursues the statute of the founding theory, readily permits the English Limited to leave and relocate its administrative seat, but does not allow it to change its legal form. [] 29]

The founding theory aims, on the one hand, to enable companies to move their registered offices while taking home law with them. [30] On the other hand, it wants to safely continue the economic interests of the home state and maintain overseas economic activities. [] 31]

The advantages of the founding theory statute are that with the founding of a company, the headquarters of its head office can be located in another state, or this can also be transferred arbitrarily after the founding. [32] Similarly, the founding theory is attributed its simple handling by quick and simple determination of personnel status. [33] The unlimited and far-reaching freedom of choice which benefits the founders of a company also shows another positive feature of the Statute.[34] The criticism of the founding theory, however, lies precisely in the fact that freedom of choice can also create dangers.[35] Manipulation by letterbox companies, as well as the danger of a “race to the bottom”, “where the most liberal legal system with the lowest level of protection”[36] prevails for third-party rights. [37]

2.3. No recognition of foreign corporations in civil law

It is questionable which of the two theories pursues the German legal system. In German company law, neither the domicile theory nor the founding theory is regulated by law. Accordingly, only case law can be used for this purpose:

2.3.1 Jursey judgment

The Jursey judgment of the BGH of 1 July 2002 announced the recognition of a European foreign company with regard to legal and party capacity. The BGH contradicted with its judgment the decisions of previous instances. According to the previous instances, a foreign company, with its statutory and actual seat on the Channel Island of Jersey, was denied legal and party rights at home. [38] This was due to the assumption of the current seat theory in Germany. The BGH responded with the opinion that irrespective of the administrative seat and the applicable company statute of a foreign company, the legal and party capacity could not be denied.[39] Although the foreign company would not be recognized as a limited liability company in accordance with its corporate form in the country of incorporation, it would be recognized as a partnership with legal capacity in Germany.[40] Through the assertion of legal capacity, the latter thus also acquires party capacity and consequently presents itself as active and passive party capacity.[41] It follows from this that in the aforementioned case, a European, foreign capital company is not recognized as such. Contrary to its original limitation of liability in the country of incorporation, it still no longer experiences it in Germany.

2.3.2. “Trabrennbahn” judgment

With the “Trabrennbahn judgment” of 27 October 2008, the BGH also expressed its opinion on the legal capacity of third-country companies. The case of a Swiss AG was assessed here. The legal capacity of this AG was called into question. Regardless of the location of the actual administrative seat, the BGH decided that the Swiss company should be granted legal and party capacity in Switzerland. [42] The basis of this decision was not the European freedom of establishment, but the approximately similar treatment of Switzerland.[43] Through various agreements between the European Union and Switzerland, Swiss law is very similar to that of the European Union. Thus, the treatment of Switzerland approaches that of a member state.[44] At this time, the European Court of Justice already ruled in various judgments for the application of the founding theory within the European Union, but the chosen seat theory still applied to third countries insofar as it was represented in Germany.[45] Consequently, the Swiss capital company is not to be treated in Switzerland under the law of its founding State. Without a new establishment and the associated commercial register entry, a foreign corporation from Switzerland is not a legally competent corporation in Switzerland.[47] However, it becomes part of the party capacity as a partnership with legal capacity.[48] Thus, it is subject to German law and is therefore legally capable as well as active and passive party capacity.[49] On the other hand, it still loses the limitation of liability associated with a corporation in Germany.[50]

2.3.3. Recognition of the departure of German corporations

Before 2008, a relocation of the administrative headquarters of a German limited company to foreign countries was necessarily regarded as a liquidation stage of the company. [51] This could not be avoided by maintaining the seat of the statutes in Germany and thus demanded a new foundation of the company in the electoral state.[52] On 01.11.2008 the MoMiG was decided. It was stipulated here that § 4a para 2 GmbHG and § 5 para. 2 GmbHG no longer exist. Consequently, it was possible to diverge the registered office of a company and its administrative seat. [53] While retaining the registered office in Germany, it was now possible for the company to move its administrative seat abroad. The possibility of the departure of a German corporation was thus created. The next hurdle is to obtain recognition of the host state. If a member state of the European Union is chosen as the receiving state, the latter is obliged to recognise the German corporation on the basis of the applicable freedom of establishment. States whose company statute follows the founding theory also recognize an influx of the German corporation, since the statute agrees with the law of the founding state. However, the influx of a German corporation into a state following the seat theory would not be possible while maintaining German company law. Legal recognition would be denied to society in the host state. [54] The continued existence of a German corporation upon departure thus presupposes that the law which prevails at the old seat permits the departure and the applicable law of the new seat permits the influx.[55]

2.3.4. Opinion: modified seat theory in Germany

Due to the lack of legal basis for defining the German company statute, the prevailing opinions based on the jurisprudence are to be assumed here. [56] The dominant opinion fundamentally pursues the idea that Germany is an advocate of the sitting theory. With the introduction of the MoMiG, German law is interpreted to the effect that an identity-preserving departure is allowed and the company does not assume the status of a company to be dissolved in Germany. [57] In return, the influx into the country. Insofar as a foreign company transfers its administrative seat to Germany, German company law applies to it in accordance with the seat theory. Consequently, society is regarded as unrecognized in Germany.[58] Germany thus permits the departure of companies abroad, but opposes the recognition of societies in the event of influx, taking into account the seat theory. This is called the so-called modified seat theory. It combines the contradictory handling of the company statute but comes into conflict with the freedom of establishment of the European Union. Accordingly, it is to be said that the prevailing opinion sees a persecution of the sitting theory in the country, but there is no perfect enforcement. Germany follows the modified seat theory. [] 59]

2.4. Recognition of UK Ltd. in Germany by the EU

Both the application of the seat theory and that of the founding theory were constantly under discussion. [60] The fundamental question was the compatibility of the company statutes and their legal consequences with the European freedom of establishment. [61] In this regard, the European Court of Justice ruled in its judgments “Centros”, “Overseas Ring” and “Inspire-Art”, thereby revolutionizing the view of the right of establishment and its application.

2.4.1 ‘Centros’ judgment

Starting with the “Centros” judgment in 1999, the discussion about the compatibility of the seat and founding theory with the European freedom of establishment came before the ECJ for the first time. The facts of the proceedings were Denmark’s refusal to register a branch of an English Limited. [62] The Limited, legally established in the United Kingdom by Danish nationals, did not develop any business activity in the United Kingdom. [63] The parents intended to carry out all business activities through a branch in Denmark. [64] This circumvented the Danish right of establishment for companies and the associated higher minimum capital requirement. [65] According to Art. 54 TFEU, the European freedom of establishment states that the provisions applicable in the State of establishment to its own nationals must also be accorded to Community nationals. Specifically, it regulates the right to take up and pursue self-employed activities, to set up companies and to pursue entrepreneurial activity. [66] Thus, the ECJ took the view that it was not, as Denmark felt, an abuse of the freedom of establishment. Instead, the refusal to register a branch in the Member State is incompatible with the freedom of establishment under the Treaty establishing the European Community. Consequently, the ECJ decided to set up the branch.[68] The English Limited was thus granted the relocation of its effective administrative headquarters to Denmark by establishing a branch.

2.4.2 ‘Overseas Ring’ judgment

In the “Overseas Ring” judgment of 05. In November 2002, the ECJ then expressed its opinion on the non-respect of the legal capacity of a society which has its legal seat in a Member State in which it was founded but establishes its administrative seat in another Member State.[69] In the facts of the action, a Dutch BV was denied legal capacity in first instances with regard to a claim for remedying defects against a German limited liability company. [70] The BV had fictitiously transferred its administrative seat to Germany on the basis of full share transfers to German nationals. [71] The ECJ ruled as follows: The denial of the legal and party capacity of a foreign company and thus the ability to be active and passive parties conflicts with the right of establishment under Article 54 TFEU. A company having its registered office in a Member State shall have the legal capacity and therefore the legal capacity of a party in another Member State on whose territory it transfers its seat and thus makes use of its freedom of establishment. For example, an English limited company with its registered office in Great Britain and its administrative seat in Germany must recognize the legal and party capacity it has acquired under the law of its founding state.

2.4.3. “Inspire Art” judgment

Subsequently, the ECJ made a further far-reaching decision on the interpretation of Article 54 TFEU in its judgment “Inspire Art” of 30 September 2003. In the dispute between the Netherlands and the private limited company by shares “Inspire Art” founded in 2000, the law WFBV created by the Netherlands was discussed. The WFBV is a Dutch law on formally foreign companies. This means that, under Dutch law, companies incorporated under foreign law which have transferred their principal place of administration and activity to the Netherlands must be registered in the commercial register there and must comply with the disclosure and publicity requirements and, as far as possible, the minimum capital requirement. [74] If these conditions are not met, the shareholders of the corporations concerned are jointly and severally liable.[75] The ECJ ruled in this dispute against the national law of the Netherlands.[76] He stressed that the freedom of establishment regulated by the EC Treaty leaves no room for such “defense laws”. It is also not with the art. 54 It is compatible with the TFEU that joint and several liability is imposed on a shareholder.77 This in turn violates the freedom of establishment, which benefits a foreign member state company.[78] The influx society is assessed according to its right of incorporation and must therefore also be recognized according to this in its desired influx country. [79]

2.5. Tax treatment of UK Ltd. as a German corporation

The following facts are associated with the treatment of an English Limited as a German limited company in Germany. The English Limited with its registered office in Great Britain and its administrative seat in Germany shall be established in accordance with § 1 Abs. 1 No. 1, para 2 Corporate Income Tax Act (KStG) i.V.m. § 10 Tax Code (AO) is regarded as an unrestricted subject subject to corporate tax. [80] However, your German unlimited corporate tax liability collides fundamentally with the unlimited corporate tax liability in the UK. [81] According to German law, the domestic administrative seat is decisive for corporate tax liability. [82] Whereas under English law the registered office of the Limited is the determining factor for corporate tax liability. [83] In order to avoid double taxation of the English Limited, a clear agreement was reached in the double taxation agreement between Germany and the United Kingdom. [84] The location of the effective management, where the basic decisions for the management of the business are made, is decisive for the residence decision.[85] According to Art. 2 para 1 lit. h) iii DBA-Great Britain, the unlimited tax liability of the Limited is thus awarded to Germany. This means that the Limited is subject to domestic taxation with its entire world income. [] 86)

The activity of an English Limited is classified as a business enterprise and is therefore subject to the German business tax liability under double taxation agreements. Thus, in total, the unlimited corporate tax and business tax liability for an English limited company with administrative headquarters in Germany results.

The English Limited is obligated under German law to draw up a tax balance sheet as well as to account for the UK GAAP. Furthermore, the English authorities require compliance with the British publicity requirements, as well as the submission of English tax returns on request. It is therefore clear that the administrative expenses of an English limited company with administrative headquarters in Germany, provided that it is treated as a corporation, are enormously high. [] 89

2.6.

The recognition and treatment of foreign corporations, in particular the English Limited, with its registered office in the country of incorporation and its administrative headquarters in the country, has undergone a major overhaul over the turn of the millennium. Great Britain pursued the founding theory and thus allowed the English Limited to leave the home country, while maintaining the company law form and rights. Germany, on the other hand, pursues the domicile theory and allowed foreign corporations to enter Germany only by applying the company law prevailing here. Despite the permissible departure, the English Limited consequently lost the rights and treatment of a limited company when it moved into the country. The compatibility between moving away using the founding theory and moving in using the seating theory was therefore not possible. With the development of case law by the ECJ and taking into account European Community law, this situation changed. Foreign corporations of a member state of the European Union are thus entitled to invoke the European right of establishment. This means that companies can leave and enter the European Union independently of the company statutes of the respective countries. The rights and treatment of an English limited liability company thus remain equal to those of a limited liability company in Germany. Whereas third country companies continue to be subject to the application of the chosen company statute of a country.

Brexit has become a cult word within the European Union since 23.06.2016. This cult word combines the words “Britain” and “Exit” and thus symbolizes the ubiquitous exit of the United Kingdom from the European Union.

The introduction of this issue began with a referendum held on 23.06.2016.[90] On that day, a referendum was held in which the British people voted by a small majority for the withdrawal of the United Kingdom and Northern Ireland from the European Union. [91] Around three quarters of a year later, the approval of the British House of Commons took place on 8 February 2017. Theresa May, the current Prime Minister, initiated the procedure for the Withdrawal Agreement on 29 March 2017.[92] The introduction is based on the art. 50 para 2 of the EU Treaty. According to Art. 50 para. 3, a deadline for the negotiation of the withdrawal agreement begins on the date of initiation. This period amounts to a maximum of two years and theoretically ends on 29.03.2019.[93] If a negotiated withdrawal agreement enters into force in advance, the period in accordance with Article 50 para. 3 TEU is terminated prematurely.[94] The entry into force of a withdrawal agreement means that the European Treaties, in particular the TEU (Treaty of the European Union) and the TFEU (Treaty on the Functioning of the European Union), no longer apply to the United Kingdom and Northern Ireland. [95] In addition to the Treaties, legal acts such as EU directives and EU regulations are therefore no longer applicable. [96] It is still controversial whether the EU withdrawal entails an automatic withdrawal from the EEA Agreement (Agreement on the European Economic Area) or whether this requires a separate termination.[97] According to point 13 of the guidelines of the European Council of 29 April 2017, the meaning of Article 126 TEU is interpreted in such a way that an EEA agreement is to be based on territorial grounds and therefore only applies to EU member states. Therefore, no separate termination is required. But with the introduction of the Withdrawal Agreement, the United Kingdom also intended to withdraw from the EEA Agreement.

There is currently no far-reaching consensus between the European Union and the United Kingdom. [98] However, on 19 March 2018, a first draft of a partially negotiated withdrawal agreement was published. [99] TF50 (2018) 35 – Commission to EU27: Draft Withdrawal Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community. According to this, a transitional period for dealing with emerging corporate regulations was made.[101] Insofar as the draft remains current, a transitional period until 31.12.2020.[102]

It is assumed that there is a possibility of a “soft Brexit” or a “hard Brexit”. [103] The soft Brexit describes the occurrence of an exit of the British with the conclusion of a negotiated withdrawal agreement as well as the renewed entry into the European Economic Area permitted under Article 128 EEA. This would therefore take place after leaving the EU.[105] Whereas the hard Brexit represents an unnegotiated exit. [106] Due to the insufficient consensus of the ongoing negotiations, the entry of a hard Brexit is feared. This would have far-reaching consequences for all concerned. [107]

In the event of a complete withdrawal of the United Kingdom from the EU, thus a hard Brexit, numerous company-law consequences result.[108] The companies described as "letter box limited" therefore bear the greatest consequences.[109] A ‘letterbox limit’ describes a limited company established under UK law whose registered office is in the United Kingdom but whose actual administrative seat is in Germany. Despite a demonstrable decline in the limited company portfolio in Germany, the Munich Chamber of Commerce as of January 1, 2018 speaks of about 30,000 English limited companies in Germany.[110] Of these, an estimated 8,000 – 10,000 are registered with their administrative headquarters in Germany in the local commercial register.[111] The registration of the English company has only declaratory, confirmatory character, which means that many more companies of this legal form with administrative headquarters in Germany exist. [112]

The continuation of the freedom of establishment in accordance with art. 54 TFEU, to which foreign firms have invoked since the relevant ECJ judgments (see 1.4), would not continue to exist.[113] It follows from this that the founding theory applicable on the basis of the freedom of establishment also no longer applies to foreign British companies.[114] An English limited company with administrative headquarters in Germany will therefore be treated as a third-country company. The treatment of third-country companies is based on the prevailing seat theory in Germany. Sitting theory assesses English societies according to German company law. [116] The consequence of this is a fictitious conversion of the English Limited into a structural, similar, domestic form of company.[117] The German limited liability company is the closest to the legal form intentions of an English limited company. However, the German law provides for far-reaching regulations for a GmbH, such as the minimum capital contribution. This makes the equality of a Limited and its existence as a GmbH impossible.[118] Consequently, the development of the jurisprudence provides for the English Limited to be regarded as a partnership in the form of a GbR (company civil law) or an OHG (open commercial company). [119] German company law for partnerships thus applies.

Treatment as a partnership results in decisive liability consequences for the English Limiteds. A limitation of liability under English law of incorporation is eliminated and replaced by the liability regime applicable to partnerships.[120] Liability for domestic partnerships is governed by the provisions of the Commercial Code. § 128 HGB (Commercial Code) states that the shareholders of a partnership are personally and unlimitedly liable for all liabilities of a company with their entire private assets. This is an ancillary shareholder liability. Accordingly, third parties can make a direct legal claim against the shareholders without first proceeding against the company. It can be assumed that by applying §§ 128,129 and 130 HGB, the personal liability of the shareholders can also be extended retroactively to old liabilities of the company. [121]

Assuming that no one-man partnerships are permitted in Germany, one-man limited companies are regarded as non-existent companies.[122] Any hidden reserves contained in such a company will henceforth be revealed. Open reserves existing at that time are considered to be distributed.[123] The English Limited thus basically eliminates the dogmatic foundation.[124]

3.2. Tax consequences with Brexit

With the entry of the hard Brexit, the English Limited with administrative headquarters in Germany bears both corporate and tax consequences.[125] As a result of the non-application of the freedom of establishment, English companies suffer considerable losses in respect of their tax advantages. [126]

Income tax does not include both corporate tax and trade tax detention of the company. Under the European membership requirements, the income of an English Limited is subject to corporate tax. This is charged in the amount of 15% of the taxable income. The income is also subject to business tax. The trade tax is due at the level of the municipally calculated levy on the respective calculated trade tax measurement amount of the company. The burden of trade tax is approximately 16-17% of income. As a result of the hard Brexit and the qualification of the English Limited as a domestic partnership, earned profits are taxed at shareholder level.[127] Accordingly, the personal income tax rate of the shareholders applies. Usually, this results in a higher burden of income tax taxes than of corporate taxpayers.[128] The burden of business tax is in addition to income tax.

Insofar as Great Britain is no longer a member state of the European Union, the fact of the liquidity stage applies to the English limited companies with administrative headquarters in Germany. According to § 12 Abs. 3 KStG a company is deemed to be dissolved insofar as it transfers its registered office to a non-EU country. As a result, all hidden reserves of society are exposed and fall under the full harshness of taxation. Particular attention should be paid to the company value of a company. The goodwill of a company is defined by the surplus value which a company possesses, deducting all debts and offsetting all tangible and intangible assets.[129] Examples of the factors of a company value are the reputation of a company, the customer base, the know-how within the company, efficient organizational structures, secured conditions and much more. The determination of a company value can be carried out in accordance with the valuation procedures according to §§ 199 to 203 BewG. Subsequently, the accounted goodwill is taxable over a period of use of 15 years in accordance with § 7 para. 1 S. 3 EStG.

Business tax companies within the European Union make use of the box privilege derived from corporate tax.[130] Companies are required to meet certain activity requirements under the DBA UK in order to continue to obtain tax benefits.[131] This significantly complicates the use of the box privilege.[132]

Furthermore, it should be noted that the previous benefits of the parent-daughter directive are also eliminated.[133] The existence of the withholding tax prohibition according to § 43b of the Income Tax Act is therefore obsolete. For companies of the EU member states, it is possible to distribute profits within a parent-subsidiary structure without withholding capital gains taxes. A prerequisite for this is an exemption certificate according to § 50d Abs. 2 EStG. Through this exemption certificate, European companies receive relief in the refund procedure.[134] English limited companies will therefore be dependent on the double taxation agreement. Although the withholding tax is already reduced to 5%, the reduction of the capital gains tax is subject to the refund procedure.[135] The interest and licence fee directive can no longer be used either. In this case, however, there is a clear regulation of the taxation right with Germany. This allows the residency state to tax it.[136]

The consequences of the departure of corporations have a decisive effect on the taxation of corporations. With Great Britain as a member state of the European Union, a move to Germany is assessed as a de-entangling under German tax law. This means that only assets are subject to tax if they are lost under German taxation law, are limited or withdrawn under this law.[138] If a corporation moves from the UK to the country, as a third country, other regulations apply. After a hard Brexit comes into effect, the UK is considered a third country, so that the departing company is considered dissolved domestically. As a result, all economic goods are subject to taxation.[139] A possible example arises after Brexit from the relocation of the administrative headquarters from home to the UK.[140]

With regard to social restructuring, the merger directive has been abolished.[141] For members of the European Union, various tax-neutral restructurings are possible under certain conditions.[142] However, tax neutrality is lost with the entry of the British exit. Finally, all profits are realized and hidden reserves are revealed. [143]

3.3. solution scenarios

Until 1995, the legal bases on the conversion methods were still scattered in various laws. With the reform of the conversion law, the regulations were structured in one law. In addition to civil law, the predominant types of reorganization serve entrepreneurs to change or adapt their corporate structures in accordance with the present economic situation. The tax counterpart to the UmwG is the Conversion Tax Act. Herein, on the basis of the UmwG, the tax handling and handling of the reorganisation measures are recorded. In 2006, the UmwStG was largely recast, as the law on the tax accompanying measures for the introduction of the European company and the amendment of further tax legislation should be taken into account. Since then, the recast version has continued.

In order to avoid the consequences of a hard Brexit, there are various possibilities for the cross-border conversion of an English Limited with administrative headquarters in Germany into a German GmbH. This includes the conversion types according to § 1 UmwG. The following types of conversions are considered for solving the present situation: