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Germany: Withholding tax challenges, repayment of contributions, current expenses

Germany: Withholding tax challenges

The KPMG member firm in Germany has prepared a report that summarizes the following recent tax developments:


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  • A tax court case from Lower Cologne was referred to the Court of Justice of the European Union (CJEU), questioning the compatibility of the anti-treaty/-directive shopping rule under German tax law with the freedom of establishment and the EU Parent-Subsidiary Directive. Under German tax law, the reduction of withholding tax is subject to a condition that the recipient satisfies the activity requirement under the German ant-treaty/-directive shopping provision. A Dutch corporation (wholly owned by a German individual) held a 26.5% interest in a German company that satisfied the requirements for withholding tax relief under the EU Parent-Subsidiary Directive. The German tax authorities, however, denied a request for refund of withholding tax on capital gains paid, on the grounds of a lack of documentation. The lower tax court questioned the compatibility of the German tax provision with EU law.
  • The federal tax court (BFH) concluded that a tax-neutral repayment of contributions can also be made by a corporation domiciled in a third country. The BFH considered a requirement limiting application of this rule to companies domiciled in Germany or in the EU to be unconstitutional and contrary to European law.
  • The federal tax court (BFH) determined that current expenses may potentially have to be treated as selling costs within the meaning of the income tax law. 
  • A tax court case from Lower Munster concerns the non-deductibility of profit reductions in situations when corporations hold shares in other corporations. 
  • Entry into force of income tax treaties with Japan, Israel, and Costa Rica


Read a November 2016 report [PDF 379 KB] prepared by the KPMG member firm in Germany: German Tax Monthly

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