Refund Procedure pursuant to Section 32 (5) of the Corporation Tax Act (KStG)
Certain requirements must be fulfilled in order to be eligible to participate in the refund procedure. These requirements are described in the following two sections.
Refund-eligible taxpayers
- The refund-eligible taxpayer must be a taxable company with limited tax liability in accordance with Section 2 (1) KStG.
- The refund-eligible taxpayer must earn domestic capital gains within the meaning of Section 20 (1)(1) of the Income Tax Act (EStG).
- The refund-eligible taxpayer must be a company within the meaning of Article 54 of the Treaty on the Functioning of the European Union (TFEU) or Article 34 of the Agreement on the European Economic Area (EEA Agreement).
- The location and place of management of the refund-eligible taxpayer must be within the territory of an EU Member State or an EEA State.
- The refund-eligible taxpayer must be subject to non-optional, unrestricted taxation of income and assets in the state where its place of management is located without being exempt from this. The tax liability in the other country must be comparable to the unrestricted corporation tax liability under Section 1 KStG.
- The refund-eligible taxpayer must hold a direct interest in the share capital or registered capital of the debtor of the capital gains. The participation rate must have amounted to less than the minimum participation requirements of Section 43b (2) EStG (from 1 January 2007 to 31 December 2011: 15%; from 1 January 2012 onwards: 10%) at the time of the dividend distribution.
Further requirements
- The requested capital income tax refund cannot be the subject of a refund pursuant to any other provision.
- It must consist of capital gains which would be excluded from consideration in the calculation of income pursuant to Section 8b (1) KStG.
- The capital gains may not be attributable on the basis of foreign provisions to any person who would have no claim to a refund pursuant to Section 32 (5) KStG if they were to earn the capital gains directly.
- The tax refund claim may not be excluded in the event of corresponding application of Section 50d (3) EStG.
- The capital income tax may not be credited, deducted as business expenditure or work-related expenses, or carried forward by the creditor or a shareholder with a direct or indirect interest in the creditor.
The refund-eligible taxpayer must prove the fulfillment of the requirements for the refund.
In particular, it must prove by means of a certificate from the tax authority of its country of residence that it is considered as a resident of that country for tax purposes, is subject to unrestricted corporation tax liability there, is not exempt from corporation tax, and is the actual recipient of the capital gains.
The certificate from the foreign tax administration must indicate that the German capital income tax cannot be credited, deducted, or carried forward and to what extent any crediting, deduction, or carry-forward has also actually not taken place.
Refund Application
The refund takes place only upon application. The application can be submitted to the Federal Central Tax Office (BZSt) and is not subject to formal requirements. The general time-limits for assessment under the Fiscal Code apply.
Important note
Since the relief procedure pursuant to Section 32 (5) KStG as well as Section 50d (1) and Section 44 (9) EStG each constitute an independent procedure, a separate application must be submitted for each procedure.
The following documents must be enclosed with the refund application:
- Certificate from the foreign tax authority: A sample of the certificate from the foreign tax authority can be found here. This is available in German and English. Self-prepared certificates are generally accepted by the BZSt provided that they contain the same content as the official sample.
- Tax certificates: As a general requirement, tax certificates must be submitted in the original for all dividend inflows. For inflows before December 31, 2012, custody certificates and credit advices are sufficient. Additional documentary evidence may be requested depending on the individual case. If tax certificates or credit advices have already been submitted as part of the relief application pursuant to Section 50d (1) EStG, reference should be made to this in the application pursuant to Section 32 (5) KStG.
- Organization chart: An organization chart from which it can be seen who holds direct and indirect interests in which shares of the applicant must be submitted. The shareholding chain should be continued as far as the last indirect shareholder.
- Description of the business activities and company purpose of the applicant
- Power of attorney granting representative authorization
- Bank details: IBAN and BIC must be specified.
- Registration number and notification date of the refund/exemption applications submitted by the applicant for periods of time that also include the application pursuant to Section 32 (5) KStG.
Historical Information
The Act on the Implementation of the ECJ Judgment of 20 October 2011 in Case C-284/09 (Commission vs. Federal Republic of Germany) entered into force on 29 March 2013 with effect as of 1 March 2013.
This change in legislation served to ensure taxation of free float dividends for recipient companies with limited tax liability which are resident in an EU/EEA State in conformity with European law.
The discharge provision of Section 32 (5) of the Corporation Tax Act (KStG) was created in order to guarantee equal treatment for dividend inflows before 28 February 2013.
Sample
Regulations
Questions and Answer
Who is responsible for the refund procedure pursuant to Section 32 (5) KStG?
The Federal Central Tax Office (BZSt) is responsible for the refund procedure pursuant to Section 32 (5) KStG (cf. Section 5 [1][39] FVG).
Who is responsible for the refund procedure on the basis of the violation of European freedom of capital movement in accordance with Art. 63 TFEU (ex Art. 6 ECT)?
Responsibility for the refund of capital yield tax in regard to the violation of freedom of capital movement falls with the land revenue authorities in accordance with Section 17 (2) FVG. In such cases, in accordance with Section 17 in conjunction with Section 20 (3) of the Fiscal Code (AO), local responsibility is held by the tax office in whose district the assets of the respective applicant are located.
What time-limits for application and assessment apply for the refund procedure pursuant to Section 32 (5) KStG?
The general time limits under the Fiscal Code (AO) apply to the refund procedure pursuant to Section 32 (5) KStG; specifically, the special provision under Section 50d (1)(9 and 10) EStG does not apply.
Are there application forms for the refund procedure pursuant to Section 32 (5) KStG?
An application pursuant to Section 32 (5) KStG can be submitted without using a form.
Is it necessary to submit two applications if the refunds pursuant to Section 50d (1) / Section 44a (9) EStG and pursuant to Section 32 (5) KStG are applied for at the same time?
Since the refund procedures pursuant to Section 50d (1) / Section 44a (9) EStG and pursuant to Section 32 (5) KStG pertain to different standards for relief, a separate application must be submitted for each provision. Mutual details (application date, registration number) from the other respective application would be helpful.
The refund procedure pursuant to Section 50d (1) EStG already requires the submission of documents for the review under Section 50d (3) EStG. Do these documents need to be resubmitted for the refund procedure pursuant to Section 32 (5) KStG?
As a general principle, all documents need to be resubmitted due to the fact that the refund procedure pursuant to Section 32 (5) KStG constitutes an independent refund procedure and Section 50d (3) EStG is reviewed independently from the refund procedure pursuant to Section 50d (1) EStG / Section 44a (9) EStG. If documents for the misuse review pursuant to Section 50d (3) EStG have already been submitted in earlier applications, then reference can be made to these by specifying the corresponding registration number.
Tax certificates / dividend credit advices have already been submitted in the original during the refund procedure pursuant to Section 50d (1) EStG. It is now no longer possible to submit the required documents in the original for the refund pursuant to Section 32 (5) KStG. Is this still necessary?
The refund procedures pursuant to Section 50d (1) EStG and Section 32 (5) KStG constitute two procedures that are independent from one another. If the certificates have been submitted as part of the refund procedure pursuant to Section 50d (1) EStG, reference should be made to the other refund procedure by specifying the corresponding registration number and application date.
To date, only one application pursuant to Section 32 (5) KStG has been submitted. No application for relief from capital yield tax pursuant to Section 50d (1) EStG has been submitted. Is an application pursuant to Section 50d (1) EStG necessary?
Yes, an application pursuant to Section 50d (1) EStG must still be submitted because these constitute two independent procedures. In the refund procedure pursuant to Section 32 (5) KStG, only the remaining residual tax rate can be refunded, regardless of whether any refund pursuant to Section 50d (1) EStG has actually taken place. The refund procedure pursuant to Section 50d (1) EStG is subject to an application period of four years (Section 50d [1][9] EStG).
Is an application for the refund of withheld and remitted capital yield tax also possible for inflows after 1 March 2013?
No, refunds of withheld and remitted capital gains is not possible for inflows after 1 March 2013.
In regard to the applicability of Section 8b (4) KStG in relation to Section 32 (5)(2)(2) KStG, it should be noted that the revised formulation of Section 8b (4) KStG is related to the introduction of Section 32 (5) KStG (cf. Act on the Implementation of the ECJ Judgment of 20 October 2011 in Case C-284/09 dated 21 March 2013, BGBI 2013 I, p. 561).
The ECJ ruled in its judgment dated 20 October 2011 (file no. C-284/09) that the withholding tax effect of the capital yield tax for foreign dividend recipients with free float shareholdings constituted an instance of unjustifiable discrimination and thus a violation of freedom of capital movement. The potential crediting of the capital yield tax in the recipient state is not sufficient to justify the discrimination.
The creation of the new Section 8b (4) KStG does not result in any competitive disadvantages vis-a-vis foreign investors. This is because granting immunity from taxation even for foreign companies would not favor the companies / the foreign investors; rather, it would benefit primarily the foreign tax authorities which would no longer need to credit the capital yield tax withheld in Germany as withholding tax in the future. With the introduction of tax liability for free float dividends and capital gains, Germany is otherwise moving closer to standard international practices. Nearly every country in Europe only grants immunity from taxation for dividends and capital gains when a minimum shareholding rate is exceeded. Many countries additionally stipulate minimum holding periods for shareholdings. With this intended change, Germany is thus returning its exceedingly generous exemption rules to the standard international level (cf. BT-Drs. 17/10604, p. 22).
Does fulfillment of the requirements of Section 50d (3) EStG still need to be proven for the refund of capital yield tax pursuant to Section 32 (5) KStG in regard to the BMF letter dated 4 April 2018 (IV B 3 – S 2411/07/10016-14)?
Yes, fulfillment of the requirements of Section 50d (3) EStG must still be proven for the refund of capital yield tax pursuant to Section 32 (5) KStG in regard to the BMF letter dated 4 April 2018. The BMF letter dated 4 April 2018 specifies the application of ECJ Judgments C-504/16 and C-613/16 in conformity with EU law. It states that Section 50d (3) EStG in the version of the 2007 Annual Tax Act dated 13 December 2006 must no longer be applied in cases in which the creditor of the capital gains has asserted a claim under Section 43b EStG. The same also applies for Section 50d (3) EStG in the version of the Act on the Implementation of the Tax Recovery Directive and for the amendment of tax provisions dated 7 December 2011. In the present case, however, a claim is being asserted pursuant to Section 32 (5) KStG, and not Section 43b EStG. In these cases, however, the scope of application of the BMF letter is not opened and Section 50d (3) EStG must still be applied in its previous version.
Contact
Federal Central Tax Office
Department St I B 4
An der Küppe 1
53225 Bonn
Phone:
+49 228 406-1200
Fax: +49 228 406-2182
Jurisdiction:
capital income tax
