Click on the above link to visit the KPMG Germany webpage on the Mondaq website
For editorial cut-off date, disclaimer, and notice of copyright see end of this article.
As reported in article no. 202, Germany's highest tax court rebuffed attempts by the German tax authorities to overturn dividend stripping schemes (decision of 15 December 1999 - DB 2000, 600). The decision addressed many issues of first impression in the dividend stripping area and received wide attention.
Subsequently, in a directive published in early November 2000 with the concurrence of the central tax authorities of the German states (directive of 10 November 2000 - DB 2000, 2247), the Federal Ministry of Finance instructed local tax authorities not to apply the Federal Tax Court decision to cases other than the one decided.
The directive summarises the high court's holding as follows:
- Economic (beneficial) ownership of shares in German corporations passes from the seller to the buyer and back again when shares are sold shortly before the dividend payment date with dividend participation rights and identical shares (or newly issued shares) are repurchased immediately thereafter without such rights.
- When handled through the stock exchange, such transactions fall under the stock exchange transaction exception contained in the old version (but not the current version) of § 50c EStG even if the seller and buyer did not deal anonymously with one another and the prices charged did not correspond to stock market prices.
- § 50c EStG constitutes a special anti-avoidance provision governing dividend stripping transactions; hence, the general German anti-avoidance provision contained in the tax procedure act cannot be applied to dividend stripping situations not covered by § 50c EStG.
The directive rejects the court's holdings on all three counts, but states that requests to stay collection of tax pending the outcome of an appeal should be granted. The tax authorities thus appear determined to re-litigate the above issues.
Editorial cut-off date: 01 June 2001
Disclaimer And Notice Of Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. KPMG Germany in particular insists that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note that the article is current only through its editorial cut-off date shown immediately above (not to be confused with the later date as of which the article was placed online – the date appearing at the article's outset). Related developments subsequent to the editorial cut-off are not necessarily reported on in later articles. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While KPMG Germany's articles are carefully reviewed, it can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised against KPMG Germany on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Germany (KPMG Deutsche Treuhand-Gesellschaft AG). No use of or quotation from the article is permitted without full attribution to KPMG Germany and the article's stated author(s), if any. Distribution to third persons is prohibited without the express written consent of KPMG Germany in advance.
