Germany: Corporation Tax System Change 2001 - Transitional Provisions

The finance ministry has issued a decree dated November 6 to resolve areas of doubt in respect of the 2001 corporation tax system change from the imputation to the half-charge method.

Corporation tax was levied under an imputation system up to 2000. In 2001 the system changed to one of half-charging dividend income in the hands of natural persons and of exempting it altogether in the hands of corporations. Companies with non-calender year ends follow the new rules in 2002, that is in respect of the financial year then ending. Numerous changeover doubts and difficulties have arisen, particularly where dividend recipient and payer have differing, non-calender year-ends. The ministry of finance has issued an explanatory decree dated November 6 in an attempt to shed light on some of the grey areas. It discusses the dividend payment for the final year of the old system, the receipt by a corporation of a dividend franked under the old system, the carry forward of old system taxed and untaxed reserves, the tax consequences of their subsequent release by distribution, and, finally, the effects of the temporary suspension of the transitional rules brought about by the Tax Concessions Pruning Act of April 2003.