In a recent decision, the Hamburg Tax Court commented on the deduction of income-related expenses in connection with dividends from portfolio investments paid to a family foundation who itself is not exempt from corporation tax.
In a request for a preliminary ruling from Italy, the European Court of Justice (ECJ) held that a national legislation providing for tax being levied on more than 5% of the amount of the dividends that financial intermediaries receive, as parent companies, from their subsidiaries resident in other Member States is contrary to EU law. This also applies in the case of a tax which is not a tax on corporate income but which includes in its basis of assessment those dividends or a part thereof.
In its decision of 3 June 2025 – VIII R 21/22, the Supreme Tax Court referred various questions to the Court of Justice of the European Union (ECJ) for a preliminary ruling in connection with the dividend withholding tax paid to third-country companies.
While calculating the participation threshold in Sec. 8b (4) Sentence 1 Corporate Tax Act for portfolio dividends (shareholdings of less than 10%) the general principles of the attribution of assets for tax purposes laid down in Sec. 39 Fiscal Code must be observed. According to a most recent judgment of the Supreme Tax Court the decisive factor is the economic ownership of the shares.
After the European Court of Justice had answered the preliminary request submitted by the Supreme Tax Court on the subject of trade tax addback of foreign portfolio dividends in the year 2001, the latter continued to suspend the appeal and now referred the matter to the Constitutional Court. It should be ascertained whether the transitionary regulation, which had been introduced with the replacement of the imputation system in 2001 with the half-charge to income tax, contravenes the principles of legitimate expectations laid down in Article 20 (3) of the Basic Law.
In a most recent decision on the procedural approach to obtain a WHT exemption, the European Court of Justice (ECJ) has reaffirmed that procedural aspects and formalities can amount to disguised restrictions, and that the practical realization of fundamental freedoms must be ensured. This requires considering not only the relevant provisions of tax law but also any procedural requirements and formalities that may hinder the application of tax benefits or relief.
In a recently published decision, the Supreme Tax Court commented on the issue of recognizing prior ownership periods in the case of a qualified share exchange during the year with respect to the relief for dividends on qualifying holdings (trade tax intercompany dividend privilege). The court rejected a deduction of the dividend from the trade tax basis because the cut-off date “at the beginning of the period of levy” applicable under Section 9 (2a) TTA was not met since the plaintiff did not yet hold an interest in V GmbH at the beginning of the assessment period.
The trade tax addback of foreign portfolio dividends in the year 2001 is in line with the EU provision on the free movement of capital in Article 63 TFEU (formerly: Article 56 TEC). This was decided by the European Court of Justice in an answer to a preliminary request submitted by the Supreme Tax Court.
According to a decision of the Supreme Tax Court, the dividend income exemption for trade tax on qualifying shareholdings is also available for distributions of companies of foreign legal form with its statutory (registered) seat abroad, provided the foreign company is comparable to a German corporation, has its place of management in Germany and therefore maintains a permanent establishment there.
Does the free movement of capital require a Member State to tax non-resident and resident investment vehicles according to the same tax system? This is the question raised in the request for a preliminary ruling submitted to the European Court of Justice (ECJ) by the Portuguese tax court (Tax Arbitration Tribunal). Contrary to the Opinion of the Advocate General the ECJ decided that the withholding tax on dividends paid to non-resident Undertakings for Collective Investments in Transferable Securities (UCITS) is in violation with current EU Law.
The distribution of profits by a Luxembourg subsidiary (in the legal form of a SARL) to its German parent company (a partnership limited by shares – KGaA) may be an abuse of legal forms where the KGaA provided SARL with a loan and shortly thereafter waived repayment, thereby putting SARL in a position to actually make the profit distribution. Even more when the losses arising from the impairment of the value of SARL because of the distribution are to be used by the shareholders in a tax-effective manner.
The Regional Tax Court of Hesse held that withholding tax levied in Canada on dividends distributed by a Canadian corporation to a German corporation should be credited against German trade tax. The tax authorities have in the meantime launched an appeal against this judgment and the case is now pending before the Supreme Tax Court for final clarification.
In his Opinion of 20 January 2022, the Advocate General (AG) suggests to the European Court of Justice (ECJ) that Germany’s requirements for withholding tax claims filed by non-resident corporate taxpayers with seat or place of management in the EU or EEA are too strict in two respects and thus in violation of Article 63 TFEU on the free movement of capital.
The Italian Supreme Court issued seven important judgments in which it ruled that Italian withholding taxes levied on dividends distributed to a German investment fund and six US investment funds are in violation of the EU principles on the free movement of capital (Article 63 (TFEU).
The Berlin-Brandenburg Tax Court decided that the relevant double tax agreement with the US requires US withholding tax on dividends to be credited against German trade tax even though the Trade Tax Act does not contain any provisions equivalent to the tax credit rules for corporation tax. It is interesting to note that the Hesse Tax Court had already decided likewise in a decision from February 2021.
In a most recent circular the Federal Ministry of Finance commented on the method of the foreign corporation tax credit under the formerly applicable German imputation system. The focus of the circular are two judgments of the European Court of Justice as regards the calculation and verification of the creditable corporation tax underlying a dividend from another EU country.
In a request for a preliminary ruling from Sweden regarding the refund of withholding tax, the ECJ is asked whether a recalculation of the loss in accordance with the rules of the source State is required for a loss-making non-resident company receiving dividends to benefit from the same treatment as a loss-making resident company. In his Opinion, the Advocate General considers such requirements to be an unjustified and disproportionate burden on foreign corporate entities and a violation of Article 63 TFEU.
Following a request for a preliminary ruling from the Tax Disputes Commission of the Republic of Lithuania, the European Court of Justice has commented in some detail on the general anti abuse provision (GAAR) of the Parent Subsidiary Directive (PSD).
Losses arising from the inability to trade Russian government bonds and Russian shares cannot be taken into account for income tax purposes in 2022. This was the ruling of the Saxony Finance Court in Leipzig in a recent judgment.
The Hamburg Tax Court decided that the withdrawal of the refund or the credit of withholding tax in the wake of cum-ex schemes due to fraudulent misrepresentation is also possible if a third party committed the fraud.
