Brexit Threatens Bankruptcy for Family Firms

If you ask Nikolas Stihl, chairman of the family-owned motor saw company Stihl, Brexit will be bad, whatever shape it takes. He’s deeply worried about the future of his company’s sixth-largest market, and he’s not alone.

The 57-year old was among a group of 30 businessmen from family-run firms that recently undertook a fact-finding mission to London to get a sense of what might be in store for them.

It’s a little-known fact that around 90 percent of the 2,500 German companies with business operations in Britain are family-owned firms like Stihl. The country’s exit from the European Union will impact many of them and may even bankrupt some.

“The effects could in parts be very severe for family companies,” Alfons Schneider, a board member of the Foundation of Family Businesses in Germany and Europe, said at a briefing in the German embassy in London.

“It’s difficult in negotiations to get everything and give nothing. There will have to be compromises.”

Nikolas Stihl, chairman, Stihl

Economic ties between continental Europe and Britain had evolved over decades, he said. “To smash or reverse them through Brexit would result in maximum damage.”

Britain is Germany’s third-biggest export market. Germany exported goods worth €86 billion, or $99 billion, last year, ranging from cars to gummy bears. Imports from Britain amounted to some €35 billion.

Mr. Stihl said this is good reason for Britain to remain an important business partner after Brexit. He said there were “various successful models” that the Brexit negotiators in Brussels could adopt, such as those of non-EU members Norway or Switzerland, which have access to the EU’s single market.

But divorce talks between Britain and the EU aren’t heading in that direction. EU and British negotiators met again this week in Brussels, and, as things stand, Britain doesn’t want to accept the free movement of people or the jurisdiction of the European Court of Justice in Britain — preconditions for a Norwegian or Swiss-type deal.

The clock is ticking: on March 30, 2019, Britain’s EU membership will end. The two sides have to strike a deal by then, or reach a transitional agreement. The latter would be a bad outcome because it would prolong uncertainty, said the entrepreneurs gathered in London.

“If there’s no planning certainty, many companies will wait and see and that means there won’t be investments,” said Hinrich Mählmann, the chief executive of Otto Fuchs, a components supplier to the auto and aerospace industry whose subsidiary Schüco sells building facades in Britain.

British hopes that German companies will lobby the German government to agree concessions for Britain will be dashed, said the managers. “That’s wishful thinking,” said Mr. Stihl. “It’s difficult in negotiations to get everything and give nothing. There will have to be compromises.”

He said he was worried about new rules that would come into force once Britain switches from being an EU member to a so-called third country. It would mean that a motor saw that requires only one certification for the entire EU market would have to go through a further certification process in Britain. That would increase costs and end up hurting consumers, he warned.

Stihl and other German companies already raised their prices for the British market following the June 23 referendum on Brexit last year.

“It hits consumers,” said Mr. Mählmann, pointing out that Britain is reliant on imports. He warned Britain not to abandon freedom of movement because that would hit industries like the construction sector which employed many EU citizens who could move back home.

Family businesses are also worried about the impact of Brexit on inheritance tax. Under current rules, the number of people German firms employ in Britain is included in their total workforce, the size of which determines the tax relief they get when company assets are transferred to heirs.

Brexit could mean that British workers are no longer taken into account in the tax calculation as Britain will have third-country status. This could hit the level of tax relief.

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