Post-Brexit: Notification requirement for British subsidiaries?

On June 23, 2016, 51.9% of British voters voted in a referendum for what is known as “Brexit”, the United Kingdom’s exit from the EU. As a result, the United Kingdom was (only) an EU member state until December 31, 2020. The United Kingdom has been a third country since January 1, 2021. This has numerous tax consequences for German companies with British subsidiaries (outbound case). This also applies to the obligation of a German parent company to notify a controlling or determining influence on the affairs of British subsidiaries.

Notification obligation according to § 138 AO in relation to third country companies

According to § 138 Abs. 2 Nr. 4 AO, domestic taxpayers have to notify when they exercise a controlling or determining influence on a third country company for the first time. A third country company is any partnership, corporation, association or estate with its registered office or management in a third country (ie outside the EU as well as Norway, Iceland, Liechtenstein and Switzerland). The influence must relate to corporate, financial or business matters. Such a controlling or determining influence is conveyed in particular through a formal legal participation (more than 50%).

The notification requirement covers the first-time exercise of the dominant position (notifiable event). The notification is then to be sent to the tax office responsible for the domestic taxpayer together with the tax return (e.g. corporation tax declaration, declaration of assessment) for the period in which the notifiable event occurs.

Violations of the notification obligation constitute an administrative offense subject to a fine (up to EUR 25,000) according to § 379 AO.

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In addition, the following must be observed: The assessment period for taxes on income or earnings in connection with relationships with the relevant third-country company begins at the earliest at the end of the calendar year in which these relationships became known through notification or in another way. However, it begins no later than 10 years after the end of the calendar year in which the tax was incurred.

Notification requirement for new UK subsidiaries

The Federal Central Tax Office has on its website informed on March 24, 2021 that, due to Brexit, German parent companies are now obliged to notify a controlling or determining influence on the corporate, financial or business affairs of a British subsidiary from January 1, 2021. The above obligation to notify applies to cases in which the German parent company exercises a controlling or determining influence on the affairs of its British subsidiary for the first time from January 1, 2021. In practice, acquiring a majority stake in an existing UK subsidiary or setting it up will be the main use case.

Obligation to notify British subsidiaries in case of old cases?

In addition, the Federal Central Tax Office assumes that “a controlling or determining influence on … affairs of a company in the United Kingdom, which existed before January 1, 2021 and which continues on January 1, 2021, … the competent tax office due to Brexit if the requirements of Section 138 (2) sentence are met 1 number 4 AO must also be communicated“Is.

Consequently, in the opinion of the German tax authorities, the responsible tax office should also be informed of all those “old” investments in British subsidiaries over which the German parent company already had a controlling influence before January 1, 2021. In practice, this affects, among other things, all British wholly-owned subsidiaries of German parent companies.

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annotation: This reading of § 138 AO is to be rejected. In our opinion, the notification obligation only has to be complied with if such a controlling or determining influence can be exercised on a British subsidiary “for the first time”. If such an influence can already be exercised before January 1, 2021, in our opinion there are good reasons against the German parent company having to make a notification in accordance with Section 138 (2) No. 4 AO. The “passive” conversion of an already controlled EU company into a third country company should not change this. However, due to the contrary opinion of the Federal Central Tax Office and the character of an administrative offense and the start-up inhibition of a violation of § 138 AO, conflicts with the German tax authorities are inevitable.


In principle, the Federal Central Tax Office correctly and logically pointed out that Brexit made the United Kingdom a third country on January 1, 2021. Thus, in the event of a controlling influence on British companies, the notification obligations according to Section 138 (2) No. 4 AO must now also be observed. To be critically questioned and, in our opinion, to be rejected in the result, is the acceptance of a notification obligation for old cases. In any case, domestic taxpayers with foreign interests are advised to check whether they are affected with regard to the legal opinion of the Federal Central Tax Office.

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