Legal Alert – Possibility for refund concerning dividend withholding taxes levied in Germany
European Court of Justice has issued a ruling (C-284/09) in which the German dividend withholding taxation was deemed to infringe the principle of free movement of capital. Consequently, Finnish companies and funds may be entitled to claim for refund as regards the excess dividend withholding taxes levied in Germany.
According to the German tax regulation, a German resident company shall withhold tax in the amount of ca. 26.38 per cent for dividends distributed on portfolio investment shares, irrespective of tax domicile of the entity receiving dividends. In case dividends have been distributed by a German entity to a corporate shareholder in another EU member state the withholding tax levied may not necessarily have been credited in that other EU member state. However, for German corporate shareholders the withholding tax for similar dividends has been refunded. In addition, such dividends are free of corporate income tax in the taxation of the German entity receiving dividends.
It is worth noting, however, that the dividend withholding taxation in breach with the principle of free movement of capital has been applied only to portfolio dividends distributed to corporate shareholders of another EU member state, Iceland or Norway. Hence, the possibility of claiming for withholding tax refund is not applied to direct investment dividends covered by the Parent/Subsidiary directive (90/435/EC).
Based on the ruling Germany is liable for refunding the excess withholding taxes levied. Consequently, dividend withholding taxes levied on portfolio investments in Germany may be refunded retroactively also to Finnish companies. Attorneys at Law Borenius is pleased to assist in the refund application process.
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