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O
CTOBER
2011
Study on the impact of several alternative solutions to the double taxation problems
presented by source country withholding taxes on cross-border dividends paid to
in-dividual and portfolio company investors within the EU
Country: France
I. General - Investor categories
The study must address the taxation ofdividendspaid by apublicly listed companyto the following cate-gories ofinvestorswho are all assumed to be based in anEU member state:
1. Individualswith shareholdings below or above 10% of the capital of the distributing company. 2. Non-financial companieswith shareholdings below 10% of the capital of the distributing company. 3. Life insurance companieswith shareholdings below 10% of the capital of the distributing company. 4. Pension fundswith shareholdings below 10% of the capital of the distributing company.
5. Collective investment vehicles (CIVs)with shareholdings below 10% of the capital of the distributing company. The term “CIV” covers vehicles: (i) with or without legal personality; (ii) which are recog-nized as separate entities or disregarded for tax purposes; (iii) which are subject to full tax, partially exempt from tax, or fully exempt from tax; and (iv) which are covered or not covered by the UCITS Directive (Council Directive 85/611/EEC). For example, CIVs include open-ended funds (e.g. mutual funds, ICVC, OEIC, SICAV, and SICAF), closed-ended funds, and common funds (e.g. FCP or spe-cial investment funds).
II. Outbound dividends - Source state taxation
A. Taxation of CIVs and pension funds
Is a nonresident pension fund or CIV ofanother EU member state treated as a separate entity for domestic tax pur-poses? Please explain
Yes, the French tax authorities (FTA) do not accept the tax trans-parency as detailed below.
Is a nonresident pension fund or CIV of another EU member state eligible for tax treaty benefits on its own behalf, e.g. reduced WHT on dividends? Please explain.
See paragraphs 6.9-6.14 of the 2010 OECD Model; and paragraphs 22-30 ofThe Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (Paris: OECD, 2010).
Further to a Supreme tax Court decision (Diebold Courtage dated October 13 1999), the FTA modified its position on outbound payments to tax transparent entities (March 29, 2007). According to these guidelines, members (not the partnership itself) of foreign tax transparent partnerships may benefit from the tax treaty en-tered into between France and the State in which they are resi-dent on French-source passive income received though the part-nership. However, the FTA clearly excluded UCITs or pension funds from the scope of its guidelines. Even if there are good arguments to support that the position of the FTA should also apply to UCITs or pension funds, the FTA’s current position is to consider that pension funds and CIV are not eligible for treaty benefits (unless if specifically provided by a treaty).
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Is a nonresident CIV, which qualifies fortreaty benefits, viewed as the beneficial owner of dividends? Please explain.
See paragraphs 31-35 ofThe Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles.
N/A
Do tax treaties concluded with the other EU member states contain specific rules on pension funds and CIVs? If yes, please explain.
Special provisions may be included.
Regarding CIVs, the Double Tax Treaties with Germany, Spain, Sweden, Austria and UK provide the application of the reduced rate of WHT limited to the percentage of shares held by resident of the CIVs country.
B. Domestic withholding tax
What are the WHT rates under domes-tic tax law on dividends paid by resident companies to resident investors and nonresident investors of other EU member states per category?Resident Nonresident
Individuals NA 19%
Non-financial companies NA 25%
Life insurance companies NA 25%
Pension funds NA 15%
CIVs: NA 25%
Are reductions or exemptions from WHT provided under domestic law for non-residents? To which categories of inves-tors do they apply? What are the condi-tions that have to be fulfilled?
Some domestic law or guidelines provide WHT exemption:
European freedom of movement - French Administrative Guidelines (BOI 4 C-7-07 and BOI 4 C-8-07):
o The companies or other entities must have their head office of effective management in EU State plus Norway and Island
o Subject to CIT at the standard rate
o 5% minimum capital holding for a minimum of two years
o Do not have the opportunity to deduct the WHT that would be due in France
EU directives - Article 119 ter of the FTC:
o The companies or other entities must be subject to CIT at a normal rate
o Holding company must be the beneficial owner
o Head office of effective management in EU State
o Holding company must be a corporation
o 10% minimum capital detention for a minimum of two years (or a commitment to hold the shares for a minimum of two years + French tax
repre-3
sentative).Is WHT calculated on a gross income or net income basis?
Article 48 of the Appendix 2 of the French Tax Code (« FTC ») provides that the WHT is levied on gross income of dividend. Is the taxation of dividends for domestic
life insurance companies, pension funds etc. reduced because they are entitled to deduct from their tax base payments to and provisions made for the obliga-tion towards policyholders etc.? (in some Member States dividends paid to life insurance companies etc. are sub-ject to withholding tax and the dividends are included in the corporate tax base of the company, but no corporation tax is effectively paid on the dividends be-cause of tax deductible provisions etc.).
Pension funds and life insurance companies are allowed to de-duct provisions as long as they meet the conditions of dede-ductibili- deductibili-ty
.
If the effective taxation of domestic life insurance companies etc. is reduced as described above, do similar entities established elsewhere in the EU get national treatment, that is, are they enti-tled to claim back the domestic with-holding tax based on a calculation of their net income (dividends, less pay-ments to and provisions for future liabili-ties)?
No.
If a WHT is applicable to dividends paid to resident investors, is the dividend included in the taxable income of the resident investors, and is the WHT off-set against the final tax liability. Is a refund of WHT made if the WHT ex-ceeds the final tax liability?
N/A
In which cases is the levying of with-holding taxes under domestic tax law in your opinion contrary to the Treaty on the Functioning of the European Union (TFEU)? In this respect please consider
The Aberdeen case (CJCE, June 18, 2009, C-303/07), Aberdeen Property Fininvest Alpha Oy) has stated that articles 43 EC and 48 EC must be interpreted as precluding legislation of a Member State which exempts from withholding tax dividends distributed by a subsidiary resident in that State to a share company resident in
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if any tax provisions applicable solely toresidents mean that their effective tax rate on dividends is significantly re-duced. Please provide the text of the relevant legal provisions.
that State, but charges withholding tax on similar dividends paid to a parent company in the form of an open-ended investment company (SICAV) resident in another Member State which has a legal form unknown in the law of the former State.
Such a difference in tax treatment of dividends between parent companies based on the place where they have their seat consti-tutes a restriction of freedom of establishment, prohibited in prin-ciple by Articles 43 EC and 48 EC, in that it makes it less attrac-tive for companies established in other Member States to exer-cise freedom of establishment and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the Member State which applies such different treatment.
The article 119 bis of the French Tax Code provides a WHT for non-resident whereas French residents are not subject to WHT. (See more details in Appendix 3).
C. Withholding agent
Is the withholding agent the company itself or a financial intermediary?
Both can be withholding tax agent
In the case of a financial intermediary, does it need to be a resident entity? If so, what is the provision of the law that prohibits the use of foreign intermediar-ies?
No
Who is liable in case of noncompliance with the withholding tax obligation? What standard of liability is applied?
The company paying the dividends or the paying agent, if any, is liable in case of noncompliance with the withholding tax obliga-tion.
In such a case, the penalties are as follows:
For late payment: application of a penalty of 5% of the sum due in addition to the late payment interest, com-puted at a rate of 0.4% per month;
For late filing and late payment or for lack of filing: appli-cation of a penalty of 10% (40% in case of non-filing in the 30 days after a formal notice) of the sum due in addi-tion to the late payment interest, computed at a rate of 0.40% per month;
For insufficient or incorrect return: application of the late payment interest, computed at a rate of 0.4% per month plus a potential penalty of 40% of the sum due in case of deliberate disregard (80% in case of fraud or abuse of law).
For payment not by bank transfer: application of a 0.2% penalty on the sums not paid by bank transfer.
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D. Relief for juridical double taxation for nonresidents
What are the WHT rates for nonresi-dents on portfolio dividends under tax treaties with other EU member states?
See appendix 1
Is a nonresident CIV, which disqualifies for treaty benefits because it is not treated as a “person” or as a “resident”, entitled to a reduced treaty rate on be-half of its investors? In the affirmative, it would not be necessary for each indi-vidual investor of a CIV to submit its own request for treaty benefits. If yes, please explain. E.g. does it matter whether the investors of the CIV are resident in the same member state as the CIV or in other member states (tri-angular situation), whether the CIV is publicly listed, etc.?
No except if specifically provided in a treaty as explained in IIA above (such as the French / German tax treaty)
Regarding CIVs, the article 25 B 4° of the Double Tax Treaty between France and Germany provides the application of the reduced rate of WHT limited to the percentage of shares held by resident of the CIVs country:”Undertakings for collective invest-ment in transferable securities (UCITS) located in one Contract-ing State where they are not subject to the tax referred to in Arti-cle 1 paragraph (2) 1.c) or paragraph (2) 2. b.), and which receive dividends or interest resulting from a source in the other Contract-ing State, may globally apply for the tax reductions, exemptions or other deductions referred to in the Convention for that portion of such income corresponding to the rights held in the UCITS by the residents of the first-mentioned State.”
In a situation, where a nonresident CIV does not qualify for treaty benefits and it is not entitled to a reduced rate on be-half of its investors, are the individual investors of the CIV in factrequesting a WHT reduction, or do practical issues prevent this from happening?
Depending on the number of investors, practical issues may arise.
Is the relief from WHT applied at source or by means of a refund procedure?
For CIV, the relief from WHT is achieved by a refund procedure. In other case, relief at source is applicable.
E. Relief at source procedure for nonresidents
If withholding tax relief is provided atsource, please explain how the proce-dure works and what the roles are of the different actors involved.
The debtor is expected to liquidate withholding tax due filing form 2777 and to pay the corresponding tax to the French Revenue (if any) no later than the 15th day of the month following the pay-ment of the dividends. To benefit from the reduced rate (or the exemption), the forms 5000 and 5003 must be received prior to the dividends’ payment. Only one form 5000 must be submitted for the year but a form 5003 must be submitted before each pay-ment (each month).
Do different relief at source procedures apply depending on the investor and/or
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type of reduction, i.e. whether providedby tax treaties or domestic law.
What kind of documentation must be provided by the investors to obtain WHT tax relief at source? Please distinguish between domestic and treaty relief if the required documentation is different.
For treaty relief,
forms filed by (a) the recipient, i.e. form 5000 named “Cer-tificate of residence” and form 5001 and;
(b) the debtor, i.e. form 2777. How often must a nonresident investor
document to be eligible for tax treaty benefit? E.g. once a year, upon each distribution, etc.
Once a year.
F. Refund procedure
Is a refund made by the tax authorities or the withholding agent?
Tax authorities.
At what time may an investor apply for a refund? E.g. upon declaration or receipt of dividend, year end, specific date, etc.
Immediately upon payment of undue WHT..
Are financial intermediaries allowed to submit refund claims on behalf of their investors? If yes, under which condi-tions?
Person acting on behalf of the claimant, provided that he provides the FTA with a copy of the agency contract that he entered into with the claimant.
Are there standardized forms to be used to submit a refund claim?
No
Is there a central office within the tax administration which handles all refund claims?
If the claimant is a French resident, the claim is sent to its tax office. If the claimant is a non-resident, the claim is sent to the nonresident tax office.
Is there a deadline for claiming a re-fund? In the affirmative, is the deadline the same as the ordinary statute of limi-tation?
Are the deadlines the same for domes-tic and cross-border dividends? If not, specify the articles of the law giving rise to the difference in deadlines.
Normally, deadline to reclaim WHT is 31 dec of the year following payment (i.e. WHT paid in 2010 can be reclaimed until 31 Dec 2011).
Based on Aberdeen case law, we try to support that an extended reclaim period is applicable i.e. WHT suffered between January 2006 and December 2009 (in that case, the claim must be filed before December 31, 2011).
For nonprofit organizations, the reclaim must be filed before De-cember 31, 2011 regarding the WHT suffered between January 2006 and December 2009.
What kind of documentation must be provided by the investors in order to obtain a refund? Please distinguish
For treaty relief,
forms filed by (a) the recipient, i.e. form 5000 named “Cer-tificate of residence” and
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between domestic and treaty relief if therequired documentation is different.
form 5001 and (b) the debtor, i.e. form 2777.
The signed version of these documents should be joined to the claim (compulsory requirements).
For a reclaim based on infringement of EU principles (i.e. Aber-deen case)
Forms 2777 and dividend tax vouchers for each distribu-tion;
A certificate of residence certifying that the UCIT is under the EU directive ;
Dividend information summarized in an excel worksheet ;
Prospectus and Supplementary Prospectuses. For nonprofit organization (pension funds),
Completed questionnaire for confirmation of pension fund status ;
Copy of by-laws, constitutional documents, prospectuses and/or description of the legal characteristics of the pen-sion fund;
Copy of the minutes of the shareholders meetings, the de-tail of the main expenses and income, the payroll of the directors and the financial statements;
Tax vouchers;
Forms 2777 or a certificate issued by the paying agent evi-dencing the amount of WHT paid ;
Details on dividends received
o Name and address of the distributing company
o Number of shares held
o Class of shares (if relevant)
o Date of the dividend payment
o Gross dividend
o Tax withheld
o Dividend net of tax
o Name and address of the paying agent
Certificate of tax residency covering the relevant years of reclaim.
How often must a nonresident investor document to be eligible for tax treaty benefit? E.g. once a year, upon each distribution, each request, etc.
Once a year.
How long does it usually take to obtain a refund?
It depends (from a couple of months for treaty reliefs to several years in case of reclaims)
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Are there any direct costs, duties, etc.associated with claiming a refund other than costs to professional service pro-viders?
No
If a financial intermediary makes a re-fund claim on behalf of the investor, what is the approximate amount of fees that will be charged?
No standard fees
Is an investor entitled to interest on a refund? If yes, please explain.
Yes in case of an administrative reclaim (eg based on the Aber-deen case law).
G. Relief for economic double taxation
Which corporate tax system isapplica-ble? E.g. (i) classical, (ii) schedular (single, multiple, half-income), (iii) impu-tation, or (iv) exemption.
See paragraph 2.2 in COM(2003) 810 final.
France has shifted from an imputation system to a (single) scheduler system, that is taxation at both the level of the com-pany and the shareholder, but the taxation of the shareholder is reduced compared to ordinary taxation (either 19% tax rate or 40% exemption).
Is the corporate tax system applied identically for resident and nonresident taxpayers per investor category with respect to dividends from a resident company? Please explain.
No. The tax rates applied to resident and non-residents are not identical.
H. Exchange of information
Is exchange of information made with other EU member states regarding payment of dividends?Yes
In the affirmative, are information pro-vided automatically, on request, or spontaneously?
On request
III. Inbound dividends - Residence state taxation
A. Taxation of CIVs
Are resident CIVs treated as separate entities for domestic tax purposes?
There are two types of French CIV: SICAV and FCP. SICAV are not treated as transparent. FCP are co-ownership of assets and could be considered as tax transparent.
How is tax neutrality achieved between direct investments and indirect invest-ments through CIVs?
Entity CIV level Investor level SICAV Exemption of
cor-porate income tax
Taxation of divi-dends
FCP Exemption of cor-porate income tax
Taxation of divi-dends
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Does the taxation of CIVs depend onwhether the investors are resident or nonresident?
No
B. Taxation of investors
What is the overall domestic tax burden on divi-dends applicable to resident investors per cate-gory?
Individuals: Dividends are assessed to income tax at the progressive income tax rates (the marginal tax rate amounts to 41%). However, resident individual shareholders are entitled to an allowance equal to 40% of the dividends. In addition, resident individuals benefit annually from a tax-free allowance (€1,525; double for couples). However, resident individuals have an option to subject the full amount of dividends to a final levy at a rate of 19% (31.3% with the 12.3% social taxes).
Companies: under certain conditions, the divi-dends could benefit from the exemption (plus the 5% lump sum) provided by the parent-subsidiary regime, if it is not the case, the dividends are subject to the CIT at standard rate (i.e. 34.43% maximum).
Pension funds / non for profits : 15%
CIV (SICAV/FCP): 0% Is the taxation of investors per category identical
whether dividends are received from resident companies or nonresident companies of other EU member states, and whether dividends are received from resident CIVs or nonresident CIVs of other EU member states? If no, please explain and provide the text of the underlying legal pro-visions.
Taxpayer Companies CIVs
Individuals yes yes
Non-financial com-panies
yes yes
Life insurance com-panies
yes yes
Pension funds yes yes
CIVs: yes yes
C. Relief for juridical double taxation
How is juridical double taxation caused by WHT on portfolio dividends relieved under domestic tax law (full credit, ordinary credit, matching credit, exemption, deduction, etc.)?Ordinary credit
If a credit method is applied in domestic tax law, is the foreign tax credit calculated on an overall basis, per country, per item, etc.?
The tax credit is calculated per distribution.
How is juridical double taxation caused by WHT on portfolio dividends relieved under tax treaties with the other EU member states?
See Appendix 2
In the case of the ordinary credit method, is the credit calculated on the basis of the foreign
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gross income or net income?In case the basis is the net income, must for-eign-source dividend be reduced by both ex-penses, which may be attributable directly to individual shareholdings, and expenses, which may only be attributed indirectly between share-holdings, such as portfolio management fees?
N/A
In the case of the ordinary credit method, may excess credit be carried forward or backward?
No
Is a resident investor of a resident CIV, which is treated as a separate entity for domestic tax purposes, but which does not suffer any domes-tic taxation on foreign dividends, entitled to a foreign tax credit for WHT paid by the CIV? Please explain.
See paragraph 42 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles.
A transfer of tax credit is possible
Is a resident investor of a nonresident CIV, which is treated as a separate entity for domes-tic tax purposes, but which does not suffer any taxation in the residence state on foreign divi-dends, entitled to a foreign tax credit for WHT paid by the CIV? Please explain.
See paragraph 44 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles.
Yes a transfer is possible in theory, but difficult in prac-tice.
Is a “refund” of foreign WHT granted to a CIV?
See paragraph 43 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles
N/A
Do you see any infringements of the TFEU in the area of relief for juridical double taxation of inbound dividends? If so, please explain and provide the text of the underlying legal provi-sions.
No
D. Relief for economic double taxation
Are the rules on relief for economic double taxa-tion, if any, identical for portfolio dividends from resident companies and nonresident companies of other EU member states? For example, is an indirect foreign tax credit granted for underlying11
foreign corporate tax if a tax credit is granted forunderlying domestic corporate tax?
See above II.G.
In the case an indirect foreign tax credit is granted, is it possible to carry forward or back-ward an unused tax credit?
N/A
E. Parent-Subsidiary Directive
Is economic double taxation under paragraph 4.1 of the Parent-Subsidiary Directive (Council Di-rective 90/435/EEC) relieved under the method of ordinary credit or exemption? Is there any difference in the treatment of domestic and cross-border situations?12
Appendix 1Source state taxation: Outbound dividends
France
Withholding tax rates for portfolio dividends under domestic law and tax treaties
Recipient: Dom. WHT
Dividends received by investor in:
Aus Bel Bul Cyp Cze Den Est Fin Ger Gre4
Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK
Individual 19 15 15 15 15 10 N/A 15 0 15 19 15 15 15 15 15 15 15 15 15 15 10 10 15 15 15 15
Non-financial compa-ny
25 15 15 15 15 10 N/A 15 0 15 25 15 15 15 15 15 15 15 15 15 15 10 10 15 15 15 15
Life insurance 25 15 15 15 15 10 N/A 15 0 15 25 15 15 15 15 15 15 15 15 15 15 10 10 15 15 15 15
Pension fund1
152
15 - - - - N/A - - -
-CIV, with legal personality1
25 15 - - - - N/A - - 15 - - - 15 15 153
CIV, without legal personality1
25 15 - - - - N/A - - 15 - - - 15 15 153
Comments:
1
The application of the treaty rate is subject to the analysis of the residence country regarding the beneficiary’s residence status.
2Pension funds are subject to the 15% rate provided they are “not-for-profit” entities and would be subject to the tax regime pertaining to such entities if their head office was located in France. 3
CIV managers are entitled to file requests to benefit from the application of the treaty. The tax authorities must determine the modalities of the application of the treaty rate to the CIV’s.
4
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Appendix 2Residence state taxation: Inbound dividends
France
Method for the elimination of juridical double taxation caused by WHT on portfolio dividends under domestic law and tax treaties
Recipient: Dom. Metho d1
Dividends received by investor in:
Aus Bel Bul Cyp Cze Den Est Fin Ger Gre2
Hun Ire4
Ita Lat Lit Lu Mal Net Pol Por Rom Slo Slo Spa Swe UK
Individual DE OC OC OC OC OC N/A OC - FC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC
Non-financial compa-ny
DE OC OC OC OC OC N/A OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC
Life insurance DE OC OC OC OC OC N/A OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC
Pension fund - OC OC OC OC OC N/A OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC
CIV, with legal personality
- OC - - - - N/A - - OC - - - OC OC OC3
CIV, without legal personality
- OC - - - - N/A - - OC - - - OC OC OC3
Comments:
1The French domestic tax law does not provide for a tax credit in relation to the WHT incurred in the source state. However, the amount of the said WHT is deductible for French tax purposes. Only the net dividend remains taxable.
2The tax credit is computed at the rate of the WHT applied on dividends in France under the same circumstances.
3CIV managers are entitled to file requests to benefit from the application of the treaty. The tax authorities must determine the modalities of the application of the treaty rate to the CIV’s. 4No more WHT is applied on dividends distributed to France.
Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption
IC = indirect credit for underlying corporate tax
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Appendix 3Explanation of infringement cases
I. Outbound dividends – source state – infringement on the TFEU by the domestic WHT
1. Gross basis taxation N/A
2. Nonresidents are not covered by special tax regimes as residents N/A
3. WHT rates
The Commission has today sent requests to Belgium, France, Greece, the Netherlands and Portugal to change various rules related to direct taxation which are disproportionate and/or discriminatory and infringe upon the fundamental freedoms set out in the Treaty of the Functioning of the EU (TFEU). The requests were sent in the form of Reasoned Opinions, the second step in the infringement procedure (Art. 258 TFEU). If there is no satisfactory reaction from the Member States in question within 2 months, the Commission may decide to refer the relevant matter to the Court of Justice (IP/10/300).
The Commission has formally requested that France change its tax rules which discriminate against foreign pension and investment funds. Under these rules, dividends paid to foreign pension and investment funds (outbound dividends) are taxed more heavily than dividends paid to domestic pension and investment funds (domestic dividends). A withholding tax of 25% is levied on dividends paid to pension and investment funds in other Member States or EEA countries (this rate may be re-duced by bilateral tax treaties), but no withholding or other tax is levied on domestic funds. The Commission considers this to infringe the free movement of capital, as set out in the Treaty of the Functioning of the EU (TFEU) and the EEA Agreement. However the amended French finance bill for 2009 has modified the French tax law and since January 1, 2010 there is no more discrimination for pension funds which qualified as non-profit institution. The general WHT for dividends served to French or non-resident NPI amounts to 15%.
4. Combined taxation v. separate taxation N/A
II. Inbound dividends – residence state – infringement on the TFEU by the domestic relief for juridical double taxa-tion
1. Per country limitation N/A
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N/A3. Net principle and indirect cost allocation N/A
Study on the impact of several alternative solutions to the double taxation problems
pre-sented by source country withholding taxes on cross-border dividends paid to individual
and portfolio company investors within the EU
Country: Germany
I. General - Investor categories
The study must address the taxation ofdividendspaid by apublicly listed companyto the following cate-gories ofinvestorswho are all assumed to be based in anEU member state:
1. Individualswith shareholdings below or above 10% of the capital of the distributing company. 2. Non-financial companieswith shareholdings below 10% of the capital of the distributing company. 3. Life insurance companieswith shareholdings below 10% of the capital of the distributing company. 4. Pension fundswith shareholdings below 10% of the capital of the distributing company.
5. Collective investment vehicles (CIVs)with shareholdings below 10% of the capital of the distributing company. The term “CIV” covers vehicles: (i) with or without legal personality; (ii) which are recog-nized as separate entities or disregarded for tax purposes; (iii) which are subject to full tax, partially exempt from tax, or fully exempt from tax; and (iv) which are covered or not covered by the UCITS Directive (Council Directive 85/611/EEC). For example, CIVs include open-ended funds (e.g. mutual funds, ICVC, OEIC, SICAV, and SICAF), closed-ended funds, and common funds (e.g. FCP or spe-cial investment funds).
II. Outbound dividends - Source state taxation
A. Taxation of CIVs and pension funds
Is a nonresident pension fund or CIV ofanother EU member state treated as a separate entity for domestic tax purpos-es? Please explain
For foreign CIVs and pension funds, it has to be analyzed wheth-er or not the foreign vehicle can be considwheth-ered comparable to a German corporate entity. Thus, foreign corporate-type funds (e.g. SICAVs, Irish plcs etc.) can be considered separate corporate entities for domestic tax purposes, whereas contractual funds, such as, e.g. Austrian “Sondervermögen” cannot be considered separate entities.
For the taxation of resident investors in a foreign CIV, the follow-ing rules apply: The foreign vehicle is analyzed with regard to its characteristics as a vehicle for the collective investment: if it is a vehicle for the collective investment, that invests in certain assets as listed in the Investment Act, follows the principles of risk diver-sification and either provides for redemption of shares or is sub-ject to supervision similar to the German supervision, the foreign vehicle is considered a foreign CIV (“ausländisches Investment-vermögen”) within the meaning of the German Investment Tax Act (InvTA). E.g., mainly UCITS funds (independent of legal form)
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and real estate funds, that are collective investment vehicles, are considered a foreign CIV, whereas vehicles that do not fall under InvTA are not considered foreign CIVs for the purpose of taxation of resident investors.Please note that the fact that a vehicle is considered a foreign CIV within the meaning of the InvTA is a question that has to be answered independently from the question of whether or not this vehicle is considered a separate corporate entity for domestic tax purposes and the answer to neither one of these questions has any effect on the determination of treaty benefits (see next ques-tion).
For EC-law purposes (Denkavit-claims) we consider the compa-rability to a German CIV to be decisive (i.e. comparable legal entity and qualification under the Investment Act).
Is a nonresident pension fund or CIV of another EU member state eligible for tax treaty benefits on its own behalf, e.g. reduced WHT on dividends? Please explain.
See paragraphs 6.9-6.14 of the 2010 OECD Model; and paragraphs 22-30 ofThe Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (Paris: OECD, 2010).
To determine whether a nonresident pension fund or CIV is eligi-ble for treaty benefits, it has to be considered resident in the other Contracting State. If the nonresident vehicle is not considered a separate taxable entity in its state of residence, it cannot be eligi-ble for treaty benefits due to the fact that it cannot be considered a resident person within the meaning of the treaty. Thus, Germa-ny would consider a foreign contractual funds not to be eligible for treaty benefits if this funds is not considered a taxable entity in its state of residence.
If the foreign vehicle is treated as a separate corporate entity in its state of residence (e.g. a SICAV), it should in principle be con-sidered eligible for treaty benefits unless it is not concon-sidered a taxable subject in its state of residence.
Please note that this is a highly disputed area of tax law.
Is a nonresident CIV, which qualifies for treaty benefits, viewed as the beneficial owner of dividends? Please explain.
See paragraphs 31-35 ofThe Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles.
Yes.
Do tax treaties concluded with the other EU member states contain specific rules on pension funds and CIVs? If yes, please explain.
The treaty with UK provides for a reduced WHT rate for distribu-tions made to pension funds (Altersvorsorgeeinrichtungen). Un-der the treaty with France a French investment funds may claim withholding tax relief based on the quota of French shareholders
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in the funds (Art. 25b para 4 DTC Germany/France).B. Domestic withholding tax
What are the WHT rates under domes-tic tax law on dividends paid by resident companies to resident investors and nonresident investors of other EU member states per category?Resident Nonresident
Individuals 26.375% 26.375%
Non-financial companies 26.375% 26.375%
Life insurance companies 26.375% 26.375%
Pension funds 26.375% 26.375%
CIVs 26.375% 26.375%
Domestic WHT of 25% plus solidarity surcharge (5.5%) applies to all dividends distributed by German companies.
Different treatment may apply to distributions from non-publicly listed companies, which are not elaborated on in this question-naire, due to the restriction in the scope to publicly listed compa-nies.
Are reductions or exemptions from WHT provided under domestic law for nonre-sidents? To which categories of inves-tors do they apply? What are the condi-tions that have to be fulfilled?
Yes, non-resident corporate entities that are subject to limited corporate tax liability are granted a refund of 2/5 of the tax with-held (i.e. down to a rate of 15.825%, which equals the statutory corporate income tax rate (incl. solidarity surcharge)). The refund is granted upon application and is subject to the German anti-treaty-shopping provision (§ 50d para. 3 EStG (Income Tax Code – Einkommensteuergesetz)).
Is WHT calculated on a gross income or net income basis?
Gross basis.
Is the taxation of dividends for domestic life insurance companies, pension funds etc. reduced because they are entitled to deduct from their tax base payments to and provisions made for the obliga-tion towards policyholders etc.? (in some Member States dividends paid to life insurance companies etc. are sub-ject to withholding tax and the dividends are included in the corporate tax base of the company, but no corporation tax is effectively paid on the dividends be-cause of tax deductible provisions etc.).
Life insurance companies, pension funds etc. are taxed on the dividends they receive (exemption does not apply, § 8b para. 7, 8 KStG (Corporate Income Tax Code – Körperschaftsteuergesetz)). They are, however, allowed to deduct payments and provisions from their taxable base, significantly reducing their taxable in-come. The German WHT on dividends paid to these institutions is creditable against their final tax liability (and may ultimately be refunded if the credit is in excess of the final tax liability).
This treatment does not apply to Pensionskassen (which are tax exempt) and Altersvorsorge-Sondervermögen (which are treated as CIVs and are also tax-exempt).
If the effective taxation of domestic life insurance companies etc. is reduced as
No.
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described above, do similar entitiesestablished elsewhere in the EU get national treatment, that is, are they en-titled to claim back the domestic with-holding tax based on a calculation of their net income (dividends, less pay-ments to and provisions for future liabili-ties)?
gross income. Payments and provisions may only be deducted if non-resident life-insurance company etc. has a permanent estab-lishment in Germany and dividends are effectively connected with this permanent establishment.
If a WHT is applicable to dividends paid to resident investors, is the dividend included in the taxable income of the resident investors, and is the WHT off-set against the final tax liability. Is a refund of WHT made if the WHT ex-ceeds the final tax liability?
Individuals: A schedular system of taxation applies to individuals, i.e. capital income, including dividends is taxed at gross basis and a rate of 26.375% (plus church taxes if applicable). Thus, WHT levied at source is the final tax burden unless the individual proves that he is subject to a lower marginal tax rate (in which case a refund would be possible).
Regular Corporations: Dividends received by corporations are exempt from corporate income tax (§ 8b para. 1 KStG). 5% of deemed non-deductible expenses are subject to tax (§ 8b para. 5 KStG). WHT is creditable against final tax liability, including the possibility of a refund. Dividends may be subject to municipal trade tax (at a rate of ~7% to ~17%, depending on municipality), but WHT is not credited against trade tax.
Financial Investors (1): Life and Health Insurance companies and Pensionsfonds – as well as other companies holding the shares as current assets (“held-for-trading exception”) – are taxed on the dividends they receive (exemption does not apply, § 8b para. 7, 8 KStG (Corporate Income Tax Code – Körperschaftsteuergesetz)). Life and Health Insurance companies as well as Pensionsfonds are, however, allowed to deduct payments and provisions from their taxable base, significantly reducing their taxable income. Other companies to which the held-for-trading exception applies may deduct expenses incurred in relation to the dividends re-ceived. The WHT on dividends paid to these institutions is credit-able against their final tax liability, including the possibility of a refund.
Financial Investors (2): Pensionskassen are exempt from tax. They are granted a partial refund of 2/5 of tax withheld (i.e. down to 15.825%)
CIVs: CIVs are exempt from tax. They may receive a full refund of any tax withheld on dividends distributed to the CIV.
5
In which cases is the levying ofwith-holding taxes under domestic tax law in your opinion contrary to the Treaty on the Functioning of the European Union (TFEU)? In this respect please consider if any tax provisions applicable solely to residents mean that their effective tax rate on dividends is significantly re-duced. Please provide the text of the relevant legal provisions.
Individuals: An infringement might occur if a foreign individual with very low income would be taxed at a higher rate than a Ger-man individual as only the latter may opt for the application of his marginal tax rate. (We do not see this type of cases in practice.) Regular Corporations: Infringement of fundamental freedoms as only domestic corporations are granted the tax exemption on dividends (i.e. effective corporate income tax rate on dividends is 0% (0.79125% taking deemed non-deductible expenses into ac-count)). In our view, trade tax should not alter this view, as (1) it requires a domestic trade or business as trade tax is a municipal business tax, (2) WHT is not credited against trade tax.
Financial Investors (1): Foreign Life Insurance companies and Pensionsfonds are discriminated against due to the fact that they are taxed on a gross basis and are not allowed to deduct ex-penses and provisions etc. even where these exex-penses and pro-visions can be shown to be linked to German source dividends. The same should apply to other companies which are taxed un-der the held-for-trading exception if they incur expenses in the relation to the shares (e.g., write-down to the lower FMV).
Financial Investors (2): Pensionskassen are currently not discri-minated against if the foreign Pensionskasse is able to obtain treaty refund or domestic refund (among other things meaning that German the anti-treaty-shopping provision does not apply). For years prior to 2008, a discrimination may exist.
CIVs: In our view, CIVs are discriminated against as a domestic CIV would not be taxed on the German dividends received.
C. Withholding agent
Is the withholding agent the company itself or a financial intermediary?
Until 2011 the company.
Starting 2012 the financial intermediary. In the case of a financial intermediary,
does it need to be a resident entity? If so, what is the provision of the law that prohibits the use of foreign intermedia-ries?
As from 2012 on:
Yes, only German financial intermediaries are required to with-hold WHT.
If no German financial intermediary is used, the company itself or any other German entity that transfers the money outside Ger-many (in general Clearstream) is required to withhold WHT on the payment.
Who is liable in case of noncompliance with the withholding tax obligation? What standard of liability is applied?
Generally both, the investor and the withholding agent/company. The obligation is triggered if the company has exercised intention or gross negligence.
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D. Relief for juridical double taxation for nonresidents
What are the WHT rates for nonresi-dents on portfolio dividends under tax treaties with other EU member states?
15%
Some treaties: 10%
Is a nonresident CIV, which disqualifies for treaty benefits because it is not treated as a “person” or as a “resident”, entitled to a reduced treaty rate on be-half of its investors? In the affirmative, it would not be necessary for each indi-vidual investor of a CIV to submit its own request for treaty benefits. If yes, please explain. E.g. does it matter whether the investors of the CIV are resident in the same member state as the CIV or in other member states (tri-angular situation), whether the CIV is publicly listed, etc.?
The fund can apply “on behalf” of all of its investors, on the basis of the treaty applicable to each investor, provided the funds is given a power of attorney to claim WHT on behalf of its investors by each investor.
In practice, tax authorities accept a reclaim filed by the fund itself to the extent investors in the funds are resident in the same con-tracting state as the fund.
In a situation, where a nonresident CIV does not qualify for treaty benefits and it is not entitled to a reduced rate on be-half of its investors, are the individual investors of the CIVin fact requesting a WHT reduction, or do practical issues prevent this from happening?
No.
The individual investor would have to provide the funds with a power of attorney and with a certificate of a German bank certify-ing the amount of deducted WHT. The procedure to receive such certificate is too complicated and too expensive.
Is the relief from WHT applied at source or by means of a refund procedure?
Relief is granted by a refund procedure on application only. Relief at source is available for Parent-subsidiary-directive situa-tions and for certain tax treaty situasitua-tions in case of qualifying shareholdings only (i.e. shareholding of at least 10% and mini-mum holding period of 12 months needed), see below.
E. Relief at source procedure for nonresidents
If withholding tax relief is provided atsource, please explain how the proce-dure works and what the roles are of the different actors involved.
Note: Only applies to cases where a corporate entity which is subject to tax (and not exempt) holds a minimum direct share of 10%. They do not apply for claims based on an infringement of EU-law. No procedural rules have been published for these claims, i.e. a very high degree of uncertainty exists as to how to deal with these claims.
The shareholder may apply for an exemption certificate at the Federal Tax Office (Bundeszentralamt für Steuern – BZSt) before
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the distribution is made. The BZSt decides on the application within three months after the application is lodged and all neces-sary documents have been presented to the BZSt. Usually, the BZSt will require extensive documentation to analyze if the Ger-man anti-treaty-shopping provisions apply.If the BZSt issues such an exemption certificate (or partial ex-emption certificate in case of treaty reduction to e.g., 5% WHT) and the shareholder presents this certificate to the distributing entity, the tax may be withheld at the lower rate.
The certificate may be subject to repeal or be subject to additional requirements and conditions. The certificate is valid for a period between one and three years (usually three years) and the shareholder is obliged to notify the BZSt of any factual changes that may be of relevance during this period.
Do different relief at source procedures apply depending on the investor and/or type of reduction, i.e. whether provided by tax treaties or domestic law.
Yes. Please note that in domestic cases, relief at source is only possible in very limited circumstances and only for dividends from non-publicly listed companies; for dividends from publicly listed companies, no relief at source is possible in domestic situations. Where such relief at source is possible in domestic situations, the procedure differs slightly depending on the reason for the (partial) exemption, e.g., in domestic situations, anti-treaty-shopping pro-vision is not tested and in domestic situations, exemption certifi-cate is provided by the local tax office responsible for the tax ex-empt entity and not by the BZSt.
What kind of documentation must be provided by the investors to obtain WHT tax relief at source? Please distinguish between domestic and treaty relief if the required documentation is different.
Domestic: Documentation to prove that entity is tax exempt (usually already present at the competent local tax office)
Foreign: Certificate of residency of the shareholder, certificate on the shareholder (acquisition, percentage of shareholding), infor-mation on the local tax office competent for the distributing entity), possibly information on the anti-treaty-shopping provision (varies, can include balance sheets, P&L statements of the shareholder, proof of existence of office space, telephone bills, information on directors, etc.)
How often must a nonresident investor document to be eligible for tax treaty benefit? E.g. once a year, upon each distribution, etc.
In case of an exemption certificate: at least every three years (generally set forth in the exemption certificate).
F. Refund procedure
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or the withholding agent? Residents: Usually tax authorities (as the credit/refund is grantedin the course of the tax assessment). In certain situations (e.g. shares in listed stock companies held in a custodian account by individuals, investment funds and tax exempt investors that can provide an exemption certificate), refund is made directly by the withholding agent/custodian bank.
At what time may an investor apply for a refund? E.g. upon declaration or receipt of dividend, year end, specific date, etc.
Resident corporate investors: In the course of assessment only (certain exceptions may apply, see above).
Nonresidents: Upon receipt of the dividends (issue of a tax certifi-cate).
Are financial intermediaries allowed to submit refund claims on behalf of their investors? If yes, under which condi-tions?
Residents: Where refund is granted (see above for exception), withholding agent directly refunds excess WHT.
Nonresidents: Only on an individual basis as representative of the investor.
Are there standardized forms to be used to submit a refund claim?
Yes
Is there a central office within the tax administration which handles all refund claims?
Yes: for foreign investors: Federal Tax Office (BZSt). For resident investors, the competent tax office depends on the reason for the refund.
Please note that tax authorities argue that the Federal Tax Office is not competent where foreign investors claim a refund on the grounds of an infringement of EU-law. For these types of refund claims, the procedural situation is completely unclear as there is neither a central tax office handling the reclaims nor is there a clear guidance as to which tax offices can be considered compe-tent for these refund reclaims. In practice, this means that foreign investors relying on the fundamental freedoms to obtain a refund have to file reclaims with a very high number of potentially com-petent tax offices to ensure that the reclaims are filed with the correct tax office.
Is there a deadline for claiming a re-fund? In the affirmative, is the deadline the same as the ordinary statute of limi-tation?
Are the deadlines the same for domes-tic and cross-border dividends? If not, specify the articles of the law giving rise to the difference in deadlines.
Yes.
The deadline is not technically the same, but usually in fact the deadline is the same as the ordinary statute of limitation: a refund of WHT under a treaty or directive has to be filed within four years after the end of the calendar year in which the dividend was re-ceived.
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What kind of documentation must beprovided by the investors in order to obtain a refund? Please distinguish between domestic and treaty relief if the required documentation is different.
Dividend vouchers
Non-residents: residency certificate (certified on official forms), evidence of percentage of shareholding (if qualifying sharehold-ing), anti-treaty-shopping questionnaire (see above)
How often must a nonresident investor document to be eligible for tax treaty benefit? E.g. once a year, upon each distribution, each request, etc.
Upon each request, anti-treaty shopping: usually once and upon relevant changes
How long does it usually take to obtain a refund?
For regular refunds for non-residents under double tax treaties, the procedure can be estimated to take 6 months.
Resident taxpayers receive a “refund”/credit when their annual tax return is assessed and the WHT is credited against their final tax liability (see above for exceptions/direct refund by withholding agent).
Are there any direct costs, duties, etc. associated with claiming a refund other than costs to professional service pro-viders?
No.
If a financial intermediary makes a re-fund claim on behalf of the investor, what is the approximate amount of fees that will be charged?
We have no information on this
Is an investor entitled to interest on a refund? If yes, please explain.
No, only for refund of WHT unduly withheld under the Interest and Royalties Directive but not for refund of WHT on dividends.
G. Relief for economic double taxation
Which corporate tax system is applica-ble? E.g. (i) classical, (ii) schedular (single, multiple, half-income), (iii) impu-tation, or (iv) exemption.
See paragraph 2.2 in COM(2003) 810 final.
Schedular system: individuals are taxed on dividends at a flat rate of 26.375% (see above); if the shares are held as business as-sets, 60% of dividends are taxable at ordinary (progressive) rates, with effective tax rated being roughly the same.
Inter-corporate dividends are exempt from corporate income tax (see above), with a 5% add-back of deemed non-deductible busi-ness expenses.
Is the corporate tax system applied identically for resident and nonresident taxpayers per investor category with respect to dividends from a resident company? Please explain.
No: for resident corporations, they can credit any WHT on their final tax liability, even if dividend is tax exempt (see above). Indi-viduals may demonstrate that their tax burden is lower than the 26.375% dividend withholding tax.
For non-residents, WHT is a final burden, no assessment is poss-ible, they are not granted any exemptions and cannot deduct any
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costs incurred.H. Exchange of information
Is exchange of information made with other EU member states regarding payment of dividends?Yes.
In the affirmative, are information pro-vided automatically, on request, or spontaneously?
We have no information on this, but in principle, information is exchanged spontaneously under the Savings Directive, whereas information on dividends should only be provided on request.
III. Inbound dividends - Residence state taxation
A. Taxation of CIVs
Are resident CIVs treated as separate entities for domestic tax purposes?
Yes.
How is tax neutrality achieved between direct investments and indirect invest-ments through CIVs?
Entity CIV level Investor level
CIVs The CIV may
ei-ther show the foreign WHT in its documentation (see investor level) or deduct foreign WHT, resulting in a reduction of income attributable to the investors.
The investor may claim an ordinary credit of foreign WHT against his own income tax liability if WHT de-duction is certified by the CIV.
If investing directly, the investor would also be able to claim an ordinary credit of foreign WHT.
Does the taxation of CIVs depend on whether the investors are resident or nonresident?
No.
B. Taxation of investors
What is the overall domestic tax burden on divi-dends applicable to resident investors per cate-gory?
Individuals: A schedular system of taxation applies to individuals, i.e. capital income, including dividends is taxed at gross basis and a rate of 26.375% (plus church taxes if applicable). Thus, foreign WHT is creditable up to the German tax rate (ordinary credit).
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Regular Corporations: Dividends received by corpora-tions are exempt from corporate income tax (§ 8b para. 1 KStG). 5% of deemed non-deductible expenses are sub-ject to tax (§ 8b para. 5 KStG). Foreign WHT is not cre-ditable as no German corporate income tax is levied on foreign dividends. Dividends may be subject to trade tax, however.Financial Investors (1): Life and Health Insurance com-panies and Pensionsfonds (as well as comcom-panies to which the held-for-trading exception applies) are taxed on the dividends they receive (exemption does not apply, § 8b para. 7, 8 KStG (Corporate Income Tax Code – Körperschaftsteuergesetz)). They are, however, allowed to deduct payments and provisions from their taxable base, significantly reducing their taxable income. Foreign WHT on dividends paid to these institutions is creditable against their final tax liability, however, it is disputed whether or not payments on provisions to pension bene-ficiaries and the like are connected with foreign source dividends and reduce the creditable amount. In any case, these companies may deduct foreign WHT from their taxable base instead of claiming a tax credit.
Financial Investors (2): Pensionskassen are exempt from tax. They may not credit foreign WHT
CIVs: The CIV itself is tax exempt (effective taxation thus 0%) and may not credit foreign WHT. However, if the CIV certifies the amount of foreign WHT, the investors may credit this WHT. The CIV or the withholding agent has to withhold 26.375% WHT on distributions and on earnings considered distributed (ausschüttungsgleiche Erträge), fully creditable for resident investors.
Is the taxation of investors per category identical whether dividends are received from resident
Taxpayer Companies1 CIVs
Individuals Yes Same
treat-1 Please note that effective taxation may differ due to the fact that foreign WHT will only be credited against the amount of German tax due on the foreign-source income (i.e. no tax credit of foreign WHT in case dividends are ex-empt as for regular corproations, potential credit of foreign withholding tax to the extent dividends are taxable in Ger-many) whereas German WHT (Kapitalertragsteuer) is fully creditable and a refund would be granted in case WHT would exceed the final tax liability.
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companies or nonresident companies of otherEU member states, and whether dividends are received from resident CIVs or nonresident CIVs of other EU member states? If no, please explain and provide the text of the underlying legal pro-visions. ment if the CIV receives foreign divi-dends (ordi-nary credit possible for investors, see above). Different treatment if the CIV rece-ives German dividends. German dividends received by a nonresident CIV are “transformed” into foreign income for the purpose of taxing resident in-vestors in the CIV. Thus, WHT levied on the divi-dend will no longer be fully credita-ble but only an ordinary credit is granted at the level of the investor in the CIV. To the extent
13
the investor is in an excess credit position, this triggers an additional tax burden in case of Ger-man divi-dends. Non-financial com-paniesYes Same
treat-ment if the CIV receives foreign divi-dends. Dif-ferent treat-ment if the CIV receives German dividends (see above). Due to the dividend exemption corporate entities can-not claim credit for foreign WHT on dividends and taxation of German dividends (transformed into foreign dividends) is always high-er in case of a routing via
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nonresident CIVs. Life insurancecom-panies
Yes See above,
actual tax effects
de-pend on
excess credit situation.
Pension funds Yes See above,
actual tax effects
de-pend on
excess credit situation.
CIVs as investors: No equal
treatment as German CIV receives full WHT refund on German dividends in 2010. Foreign WHT on for-eign dividends (possibly re-duced due to treaty) can be credited by resident inves-tors if certified by the funds (see right col-umn).
See above.
C. Relief for juridical double taxation
How is juridical double taxation caused by WHT on portfolio dividends relieved under domestic tax law (full credit, ordinary credit, matching cre-dit, exemption, deduction, etc.)?Ordinary Credit.
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is the foreign tax credit calculated on an overallbasis, per country, per item, etc.?
Individuals: overall basis (usually no material difference due to schedular system with flat rate applying to gross basis).
How is juridical double taxation caused by WHT on portfolio dividends relieved under tax treaties with the other EU member states?
Ordinary credit.
In the case of the ordinary credit method, is the credit calculated on the basis of the foreign gross income or net income?
Net income. (Individuals may not deduct any expenses, neither related to domestic dividends nor related to for-eign dividends.)
In case the basis is the net income, must for-eign-source dividend be reduced by both ex-penses, which may be attributable directly to individual shareholdings, and expenses, which may only be attributed indirectly between share-holdings, such as portfolio management fees?
The extent of expenses attributable is disputed as the wording of the law is not clear, as it refers to an „eco-nomic link“ (“wirtschaftlicher Zusammenhang”). There was a law change which eliminated the need for a “di-rect” economic link in order to overrule a court decision that only directly attributable expenses reduce the net income when calculating the creditable amount of foreign taxes.
In the case of the ordinary credit method, may excess credit be carried forward or backward?
No.
Is a resident investor of a resident CIV, which is treated as a separate entity for domestic tax purposes, but which does not suffer any domes-tic taxation on foreign dividends, entitled to a foreign tax credit for WHT paid by the CIV? Please explain.
See paragraph 42 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles.
Yes, the CIV either deducts the foreign WHT as expense when calculating the income per unit or shows the cre-ditable foreign WHT. If the WHT is shown/certified, the investors in the CIV can claim a credit for foreign WHT (ordinary credit) against German income tax.
Is a resident investor of a nonresident CIV, which is treated as a separate entity for domes-tic tax purposes, but which does not suffer any taxation in the residence state on foreign divi-dends, entitled to a foreign tax credit for WHT paid by the CIV? Please explain.
See paragraph 44 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles.
Yes, the CIV either deducts the foreign WHT as expense when calculating the income per unit or shows the cre-ditable foreign WHT. If the WHT is shown/certified, i.e. the nonresident CIV follows the German rules for the documentation, the investors in the CIV can claim a cre-dit for foreign WHT (ordinary crecre-dit) against German income tax. CIV has to be considered a foreign CIV with-in the meanwith-ing of the InvTA.
Is a “refund” of foreign WHT granted to a CIV?
See paragraph 43 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles
No, but in case the CIV certifies this WHT, the investors in the CIV may claim a credit for foreign WHT (see above).
divi-16
the area of relief for juridical double taxation ofinbound dividends? If so, please explain and provide the text of the underlying legal provi-sions.
dends to non-resident investors (i.e. outbound divi-dends). Inbound cases have not been a focus area in the past.
D. Relief for economic double taxation
Are the rules on relief for economic double taxa-tion, if any, identical for portfolio dividends from resident companies and nonresident companies of other EU member states? For example, is an indirect foreign tax credit granted for underlying foreign corporate tax if a tax credit is granted for underlying domestic corporate tax?See above II.G.
Yes.
Due to partial or full dividend exemption or schedular system (see above), no indirect credit for underlying corporate tax is granted.
In the case an indirect foreign tax credit is granted, is it possible to carry forward or back-ward an unused tax credit?
n/a
E. Parent-Subsidiary Directive
Is economic double taxation under paragraph 4.1 of the Parent-Subsidiary Directive (Council Di-rective 90/435/EEC) relieved under the method of ordinary credit or exemption? Is there any difference in the treatment of domestic and cross-border situations?17
Appendix 1
Source state taxation: Outbound dividends
Germany
Withholding tax rates for portfolio dividends under domestic law and tax treaties
Recipient: Dom. WHT
Dividends received by investor in:
Aus Bel Bul Cyp Cze Den Est Fin Fra Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK
Individual 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 15 Non-financial company2) 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 15 Life insurance2) 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 15 Pension fund2) 26,375 15 15 15 15 15 15 15 15 15 25 15 10 15 15 15 15 15 15 15 15 15 15 15 15 15 101) CIV, with legal
personality2)
26,375 15
CIV, without legal personality3
26,375
-Comments:
1) UK treaty 2010 (applicable as of FY 2011): Special reduced WHT-rate for dividends distributed to Altersvorsorgeeinrichtungen / Pension funds.
2) Refund for domestic WHT down to a rate of 15.825% available for non-resident entities subject to limited corporate tax liability (i.e. comparable to German corporate entity).
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Appendix 2
Residence state taxation: Inbound dividends
Germany
Method for the elimination of juridical double taxation caused by WHT on portfolio dividends under domestic law and tax treaties
Recipient: Dom. Metho d
Dividends received by investor in:
Aus Bel Bul Cyp Cze Den Est Fin Fra Gre Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK
Individual oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc Non-financial company oc/ex oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc Life insurance oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc Pension fund oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc oc
CIV, with legal personality
xx xx xx xx xx xx xx xx xx x xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx
CIV, without legal personality
xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx
Comments:
Pension fund relates to Pensionsfonds only. Pensionskassen are exempt from tax, no credit granted.
xx: Foreign WHT can either be certified by CIVs, giving their investors the opportunity to claim ordinary credit for this WHT or the CIV may deduct foreign WHT, thereby reducing the income attributable to its investors. No refund/credit granted at the level of the CIV.
x: Treaty with France: Special rule for distributions to investment funds (Art. 25b para 4)
Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption
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Appendix 3
Explanation of infringement cases
I. Outbound dividends – source state – infringement on the TFEU by the domestic WHT
1.
Gross basis taxation
Resident individuals are in principle taxed on a gross basis as well. Resident corporate entities that are
not tax-exempt may, however, deduct costs incurred with regard to portfolio shareholdings. This is
especially relevant for pension funds (Pensionsfonds), Life Insurance companies and corporations
subject to the held-for-trading exception. Contrary to that, nonresident corporate investors are subject
to WHT on dividends on a gross basis, giving rise to a potential infringement. With regard to
Pen-sionsfonds, the Commission has already initiated an infringement proceeding against Germany
(C-600/10).
2.
Nonresidents are not covered by special tax regimes as residents
Whereas resident CIVs are treated as taxable subjects but are tax exempt, non-residents CIVs suffer
irrecoverable WHT on German dividends. Thus, resident CIVs do not have to pay German WHT on
German dividends whereas foreign CIVs suffer from this tax. The same reasoning applies to
tax-exempt charitable organizations.
3.
WHT rates
No infringement, as initial WHT rates are not lower for resident investors
4.
Dividend exemption
German dividends received by resident non-financial corporations are exempt from corporate income
tax. The WHT on these dividends may nonetheless be fully credited against the final corporate income
tax liability of the recipient, even if this results in a refund of WHT. German WHT (as reduced by
domestic provisions to 15.825% or by applicable treaty to 15% in most cases) is a final tax burden for
nonresident investors, however, as these nonresidents cannot opt for tax assessment and are not
granted the exemption for dividends received. The Commission has already initiated an infringement
proceeding against Germany (C-284/09).
5.
Combined taxation v. separate taxation
Resident non-financial companies, life insurance companies, companies subject to the held-for-trading
exception and Pensionsfonds are subject to taxation on the combined result of their activities. For
ex-ample, dividends (if taxable at all) may be set-off against losses from other activities. A nonresident is
subject to a separate WHT tax on dividends from German companies even though the nonresident may
have other taxable activities in Germany. For example, a nonresident bank is subject to a final WHT
20
(final rate after reduction depending on treaty, but initially 26.375%, domestic reduction to 15.825%)
on German dividends even if the nonresident generates losses in a German permanent establishment
provided that the shares in the German companies are not attributable to the permanent establishment.
II. Inbound dividends – residence state – infringement on the TFEU by the domestic relief for
juridical double taxation
1. Per country limitation
Not yet analyzed in detail. Relief for double taxation under the ordinary credit method is calculated on
per country-basis. This means that relief for taxes paid in other Member States with a taxation
exceed-ing German taxation may be lost. As dividends are tax exempt for non-financial investors, no foreign
WHT may be credited.
2. Excess foreign tax credit
Not yet analyzed in detail. Excess foreign tax credit cannot be carried forward, regardless of the reason
of the excess-credit situation (e.g. taxpayer incurred losses, dividends tax exempt).
3. Net principle and indirect cost allocation
Not yet analyzed in detail. Relief for double taxation is calculated on the basis of the foreign net
in-come.
Study on the impact of several alternative solutions to the double taxation problems
pre-sented by source country withholding taxes on cross-border dividends paid to individual
and portfolio company investors within the EU
Country: Ireland
I. General - Investor categories
The study must address the taxation of dividends paid by a publicly listed company to the following cate-gories of investors who are all assumed to be based in an EU member state:
1. Individuals with shareholdings below or above 10% of the capital of the distributing company. 2. Non-financial companies with shareholdings below 10% of the capital of the distributing company. 3. Life insurance companies with shareholdings below 10% of the capital of the distributing company. 4. Pension funds with shareholdings below 10% of th
