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At the time of ratification of the Parent-Subsidiary Directive of July 1990, Germany reserved the right to collect 5 % withholding tax on dividends paid to EU parent companies by their German subsidiaries. This reservation expired on 30 June 1996. Dividends paid after this date to qualifying EU parent companies are therefore exempt from German withholding tax, subject to compliance with certain formalities. To qualify for zero withholding under the Directive as implemented in sec. 44d EStG, the parent company must have held a 25 % share in the subsidiary for 12 consecutive months at the time the withholding tax accrues. The percentage is reduced to 10 % subject to a reciprocity provision in the tax law of another EU Member State with which a tax treaty is in force.
The date of payment of a dividend is synonymous with the time of accrual of withholding tax. This is, under sec. 44 par. 2 EStG, the date specified for payment in the dividend resolution or, if no date is specified, the date of the dividend resolution.
The reduced withholding requires filing a request with the Federal Finance Office. Furthermore, unless an exemption certificate is obtained, full withholding is required subject to later refund (sec. 50d EStG). We are pleased to assist in complying with these formal requirements.
Disclaimer and 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. We in particular insist 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 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 our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised 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 Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.
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