New taxatation for free float dividends starting 28 February 2013

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Previously, dividends distributed from one corporation to another were 95% tax exempt for the shareholder, pursuant to § 8b Abs liVm Abs. 5 KStG.

This regulation was in contradiction with European law, where dividends from German corporations distributed to foreign corporations are taxed at 25% as capital gains, pursuant to § 32 Abs. 1 KStG, provided that the foreign corporation has less than a 10% stake in the distributing corporation.  In this case – in accordance with the Parent-Subsidiary Directive – no capital gains tax in Germany is levied.

In order to overcome the disadvantages of corporations in other European countries, § 8 Abs. 4 KStG was enacted, which introduced full taxation on free float dividends (i.e., holdings with less than 10% at the beginning of the calendar year). For indirect shareholdings of other companies, which are owned by partners, the rate depends on the proportional ownership interest of each co-owner.

The same applies to shares of other companies in asset management partnerships, as is often the case with private equity funds.

This regulation applies to all free float dividends received after 28 February 2013. The taxation of capital gains from the sale of free float shares does not differ from the new legal provisions for the taxation of dividends. Capital gains remain 95% tax exempt.
(Source: Implementation Act of the European Court of Justice ruling of 20 October 2011 in case C-284/09)

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Michael Leinauer, Partner, Auditor, Tax Advisor

Tags: tax advice

By Michael Leinauer, Partner, Auditor, Tax Advisor, published 2013-05-01

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Clarification for taxable entities

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Based on recent rulings made by the German fiscal court, uncertainty has arisen as to what are the exact requirements for organizational integration. Organizational integration is, along with financial and economic integration, a condition for the existence of a taxable entity.

These uncertainties have been removed by a recent letter from the Federal Ministry of Finance (BMF).: In cases where the management of the parent company is the same as that of the subsidiary, organizational integration is granted. The same applies if the subsidiary company has entered into a control agreement or the subsidiary company is incorporated in the parent company. In all other cases, a careful analysis of the degree of interdependence between the parent company and controlled company or the intervention possibilities on the basis of BMF must be considered. Neither the financial obligation associated with the right of shareholders to issue instructions nor a contractual obligation to regularly report on the management is sufficient grounds for an organizational integration.

The new guidelines are valid from 01 January 2013. However, until 01 January 2014, the tax authorities will not object to taxpayers using the 31 December 2012 legal regulations.

Source: Letter of the Federal Ministry of Finance dated 07 March 2013 (IV D 2 – S 7105/11/1001)

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Michael Siebel, Partner, Auditor, Tax Advisor

Tags: tax advice

By Michael Siebel, Partner, Auditor, Tax Advisor, published 2013-05-01

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.

No correction required for assessment errors of the tax office

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The daily press covered The Federal Fiscal Court judgment that taxpayers are not obliged to correct erroneous tax assessments which are in their favour.

In the deciding case, the tax office had inadvertently assessed an operating profit of about EUR 500,000 as a loss of the same amount. The favoured taxpayer was not only happy about the tax savings that year, but also used the assessed loss to offset against his positive income in subsequent years.

When his audit was announced, the taxpayer began to doubt whether he had acted lawfully and voluntarily paid in order to avoid a penalty fee. The Federal Fiscal Court stated in its decision that the voluntary disclosure would not take effect because the taxpayer was not guilty of tax evasion. The tax office must correct its own errors within the time limit.

In this case, the opportunity for the tax office was unfortunately already past when the mistake was recognised.

Source: BFH-judgment on 04.12.2012 (VIII R50/10)

Contact:

Michael Leinauer, Partner, Auditor, Tax Advisor

 

Tags: tax advice

By Michael Leinauer, Partner, Auditor, Tax Advisor, published 2013-05-01

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.