Tax Thursday: German anti-treaty rules

New German anti-treaty shopping rules for withholding tax relief in sight

The German government, on 21 January 2021, adopted the draft of  new anti-treaty shopping rules for the withholding  tax relief. The parliament will discuss the draft and most probably adopt it without any major amendments.

Background: In Germany, the distribution of dividends is subject to a withholding tax of 26.375 % (incl. solidarity surcharge). In order to benefit from the withholding tax reductions granted according to the EU Parent-Subsidiary Directive or the relevant DTA, a foreign shareholder could file an application for exemption or refund at the German Federal Tax Office (“Bundeszentralamt für Steuern”). These rights, however, were restricted by the anti-treaty shopping and anti-directive shopping rule according to Sect. 50d para. 3 Income Tax Act. The ECJ, in 2017, considered this provision being a violation of EU-law. The rule generally assumed a misuse in case the applying foreign company has low substance and economic activity. The new rules allow for an individual refutation of the misuse presumption and to consider the role of the foreign company within the group of companies.

To Do:

After the judgement of the ECJ, the German tax authorities, lowered the requirements for withholding tax relief considerably. The implemen-tation of the new rules will, even though not like the former provision, definitely lead to a much stricter practice and more administrative costs regarding the application process at the Federal Central Tax Office. Therefore, it is highly advisable to submit applications as early as possible (up to 6 months before expiration of the certificate of exemption). 

If you have any questions, please contact Lars Luedemann.