Germany – New legislation on taxation of portfolio dividends and introduction of refund procedure – impact on Fokus Bank claims

Olivier Hermand 19 February 2013


Background

In October 2011 (case C-284/09) the CJEU held that the German taxation of portfolio dividends paid to non-resident shareholders was not in line with the free movement of capital (see NA 2011-013). The judgment left Germany the choice between rendering all portfolio dividends (i.e. those paid to residents and non-residents) chargeable to corporation tax or waiving the withholding tax on those paid to corporate shareholders abroad. After some debate, the legislator chose the former option.

Legislative changes

The bill has now received the blessing of the Bundesrat and so passed its last parliamentary hurdle. Its enactment into law is for all practical purposes now certain. It amends the Corporation Tax Act to charge corporation tax on all dividends received by resident corporations on or after March 1, 2013 on shareholdings of less than 10% of the paying company’s share capital. It thus excludes portfolio dividends from the applicability of the dividend exemption.

Additionally a refund procedure for withholding taxes on portfolio dividends received before 1 March 2013 is introduced. On application foreign EU/EEA corporations receive a full refund of the withholding taxes under several conditions.

Impact on Fokus Bank claims

The legislative changes are very good news for EU/EEA:

  • non-life insurance companies
  • re-insurance companies
  • banks with shares in German companies allocated to the liquidity reserve (Liquiditätsreserve) or asset book (Anlagebuch)
  • ‘normal’ corporations

who have filed refund claims or are contemplating to file claims in Germany to recover withholding taxes unduly suffered in Germany. For dividends received between January 1, 2009 up to February 28, 2013 by such companies we strongly recommend to file refund claims as they can benefit from the newly introduced refund procedure. Claims for 2009 need to be filed before 31 December 2013.

For dividends received as of 1 March 2013 the discrimination has been abolished for such corporations.

The legislative changes do not have a direct impact on Fokus Bank claims for foreign:

  • life and health insurance companies
  • investment funds
  • pension funds (Pensionsfonds)

as the discrimination of these has still not been abolished. We therefore recommend filing Fokus Bank claims for these shareholders in Germany also for future years.