Germany's second legislative chamber, the Bundesrat, has
today approved the compromise issued by the joint committee of both
houses, under which dividends paid to corporations will in future
be fully taxable, if the recipient corporation holds less than 10%
of the shares in the paying entity. Until now, such dividends were
effectively 95% tax exempt. Under the wording of the law, the
participation exemption can be obtained by purchasing at least 10%
of the shares in the paying entity during the year, otherwise, the
10% threshold needs to be met at the beginning of the calendar
The new law applies to all dividends that are paid to the
shareholder on or after March 1, 2013. Capital gains of
corporations remain effectively 95% tax exempt, even if the
shareholder corporation owned less than 10% in the company whose
shares it sold.
The new legislation aims at ensuring compliance with EU law,
after the European Court of Justice had attacked German laws on
dividends paid to minority shareholders. Until now, the wording of
the law provided for a full credit of withholding taxes for German
taxpayers, while minority shareholders outside of Germany faced a
definitive withholding tax charge. Initial plans to grant a tax
exemption for both German and foreign corporate shareholders were
dropped in the joint committee.
Potential Refund Claim
Where corporate shareholders resident in the EU or the EEA have,
in the past, not obtained full exemption from dividend withholding
tax, legislation has been introduced formalising a refund claim for
such withholding tax. There are some formal requirements such as a
certificate of residency and of liability to corporate income tax
in the EU or EEA country of residence. Retroactive applications
should be considered relating to withholding tax returns filed in
2009 and onwards.
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.
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