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)
Tags: tax advice
By Michael Leinauer, Partner, Auditor, Tax Advisor, published 2013-05-01