A European Court of Justice ruling in October 2011 (case C-248/09) has opened up the possibility of certain “old cases” becoming eligible for a refund of German capital gains tax. This applies to corporations with a limited tax liability which have their principal place of business and management in an EU/EEA state and no more than a 10% shareholding in domestic corporations. This possibility of a refund derives from the new regulation governing the taxation of what are referred to as free-float dividends, but only concerns those taxes on dividends received up to the 28th of February 2013.
Generally speaking, an informal application for a refund can be submitted to the German Federal Central Tax Office, but it must be accompanied by proof of compliance with the following criteria:
- unlimited tax liability in the state the corporation is domiciled (place of management);
- direct participation in the stock or nominal capital of the distributing company;
- the corporation applying for the refund is the actual recipient of the dividends (shareholder) and the dividends are attributed to it for tax purposes;
- the entitlement to a refund must not be excluded under Sec. 50d para.3 of the German Income Tax Act (the company applying for the refund is commercially active and neither natural persons nor third-country nationals have a shareholding in it);
- no refunds are possible under other regulations (e.g. double taxation agreement);
- in the state where the company is domiciled, the German capital gains tax may neither be attributed to the corporation submitting the application or to its shareholders, nor may it be deducted as an expenditure.
If the prerequisites are fulfilled, the capital gains tax is refunded based on a notice of exemption for all profit payments disbursed in a calendar year. The fulfilment of the above prerequisites shall be demonstrated by a certificate of the foreign tax authority. The limitation for applications for previous years is based on the general period of limitation applicable to taxes (four years).
According to our information, the German Federal Central Tax Office is currently preparing an appropriate form which can be submitted to the foreign tax office in order to certify that the above criteria are fulfilled. It remains to be seen when this form will be available and how the foreign tax offices will respond to it.
Tags: tax advice, capital gains tax, minority shareholding
By Thomas Jäger, Partner, Tax Advisor, Ulrike Schmid, Tax Advisor, published 2014-02-14