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BGH Decision of February 16, 2021 - II ZB 25/17

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In the Federal Court of Justice's (BGH) decision dated February 16, 2021, the court addressed for the first time the issue of the legal capacity of a Limited company following Brexit. The reasoning in the decision states as follows: "The participant can no longer invoke the freedom of establishment regulated in Articles 49 and 54 TFEU after the United Kingdom's withdrawal from the European Union." According to Article 50(3) in conjunction with Article 1(3) TEU, the TEU Treaty ceases to apply to a member state that has withdrawn from the European Union from the day the withdrawal agreement comes into effect, or otherwise two years after the notification of withdrawal. Thus, the EU legislator has made a generally applicable explicit regulation concerning the temporal validity of the TEU Treaty. In the withdrawal agreement, the United Kingdom and the European Union agreed that the United Kingdom...

LTD shareholders as a company subject to VAT according to § 2 UStG

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In the previous post, we reported on the information letters from the tax offices regarding the Federal Ministry of Finance's letter dated December 30, 2020.

These letters are currently being supplemented by letters informing the LTD shareholder personally of a VAT number, or announcing the allocation of VAT numbers. Usually, these letters refer to the Federal Ministry of Finance's letter dated December 30, 2020, and additionally note that the LTD will continue to be treated as a subject of corporate tax due to the Brexit Tax Accompanying Act.

As a result, the tax offices assume that taxes for LTDs will be declared using two tax numbers in the future. The existing tax number of the LTD will continue to be used for the corporate tax declaration. A VAT number assigned personally to the entrepreneur will be used for VAT declarations.

These letters typically do not come with legal remedy instructions but are likely to have regulatory content and thus represent an administrative act against which legal remedies are permissible.

You can download a non-binding sample of a corresponding objection further below. Before possibly initiating legal action, you should ...  

The Legal Capacity of the Limited after Brexit

Article 54 TFEU, BGH (Trabrennbahn) and BFH jurisprudence

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As of 12/31/2020, the United Kingdom has notably exited the EU internal market.

What implications does this have for the Limited in Germany?

First, it should be noted that this question is currently not uniformly answered. Ultimately, it will have to be resolved by the courts.

However, the blanket statement that the Limited in Germany is no longer legally valid because this corresponds to the supreme court jurisprudence in Germany seems premature. Such representations were mainly spread by authorities in mass circulars to Limiteds.

It is true that the BFH in its decision (resolution of January 8, 2019, II B 62/18) among other things, determined that the legal capacity is governed by the so-called incorporation theory if a company is effectively established in an EU member state, a member of the EEA, or a state treated as equivalent to these on the basis of a treaty in terms of freedom of establishment according to its regulations. This initially means that EU companies and companies from states with which a corresponding treaty has been concluded are legally valid in Germany, and the company in Germany is additionally recognized as a corporation with corresponding limited liability to the company assets.

If the company is not from such a state, it can still be legally valid (as a partnership) if it has more than one shareholder. However, it will not be recognized as a corporation. Thus, there is personal liability for the shareholders.

Interim result: According to BFH jurisprudence, companies are legally valid if they have at least two shareholders or are effectively established ...