The new § 12 paragraph 4 of the Corporate Income Tax Act - tax protection for the Limited

On February 20, 2019, the Finance Committee presented its recommendation for approval and report on the draft legislation for the Brexit Tax Accompaniment Law. The draft includes, among other things, an amendment to § 12 of the Corporation Tax Act. A new paragraph 4 is to be added, which reads as follows:

"(4) A corporation with unlimited tax liability located in the United Kingdom of Great Britain and Northern Ireland shall continue to have the business assets attributed to it that were attributed to it before the withdrawal from the European Union."

According to the literal wording of this provision, this would be limited to limited liability companies that were established before Brexit. However, the explanation to the amendment explicitly references the supreme court jurisprudence of the Federal Finance Court on the type comparison for companies from third countries (judgments of June 23, 1992, BStBl II p. 972, and of September 8, 2010, BStBl II 2013 p. 186), suggesting that this regulation might be interpreted broadly and that the last half-sentence of § 12 para. 4 KStG should be understood as clarifying that Brexit itself is not a triggering event.

On February 20, 2019, the Finance Committee presented its recommendation for approval and report on the draft law accompanying Brexit tax legislation. The draft includes, among other things, an amendment to § 12 of the Corporation Tax Act. A new paragraph 4 is to be added, which reads as follows:

"(4) A corporation with unlimited tax liability located in the United Kingdom of Great Britain and Northern Ireland shall continuously attribute to its business assets that were attributable to it before the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union."

Based solely on the wording of this provision, it would be limited to Limited companies that were founded before Brexit. However, the explanation of the amendment explicitly references the supreme court jurisprudence of the BFH on type comparison for companies from third countries (judgments of June 23, 1992, BStBl II p. 972, and of September 8, 2010, BStBl II 2013 p. 186), which could suggest that this regulation should be interpreted broadly and that the last half-sentence of § 12 (4) KStG should be understood as a clarification that Brexit itself is not a triggering event.