European Court of Justice has issued a ruling (C-284/09) in
which the German dividend withholding taxation was deemed to
infringe the principle of free movement of capital. Consequently,
Finnish companies and funds may be entitled to claim for refund as
regards the excess dividend withholding taxes levied in
Germany.
According to the German tax regulation, a German resident company
shall withhold tax in the amount of ca. 26.38 per cent for
dividends distributed on portfolio investment shares, irrespective
of tax domicile of the entity receiving dividends. In case
dividends have been distributed by a German entity to a corporate
shareholder in another EU member state the withholding tax levied
may not necessarily have been credited in that other EU member
state. However, for German corporate shareholders the withholding
tax for similar dividends has been refunded. In addition, such
dividends are free of corporate income tax in the taxation of the
German entity receiving dividends.
It is worth noting, however, that the dividend withholding taxation
in breach with the principle of free movement of capital has been
applied only to portfolio dividends distributed to corporate
shareholders of another EU member state, Iceland or Norway. Hence,
the possibility of claiming for withholding tax refund is not
applied to direct investment dividends covered by the
Parent/Subsidiary directive (90/435/EC).
Based on the ruling Germany is liable for refunding the excess
withholding taxes levied. Consequently, dividend withholding taxes
levied on portfolio investments in Germany may be refunded
retroactively also to Finnish companies. Attorneys at Law Borenius
is pleased to assist in the refund application process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
