UK and International Tax news
CJEU Decision In German Withholding Tax Case
Friday 1st July 2022
The CJEU has released its decision on a case involving German rules on refunds of dividend withholding tax to a UK resident corporate shareholder.
In ACC Silicones Ltd v Bundeszentralamt fur Steuern [ Case C-572/20], ACC Silicones Ltd (UK Co) was a UK company which held, between 2006 and 2008, 5.26% of Ambratec GmbH (G Co).
UK Co received dividends from G Co subject to 20% WHT plus a solidarity surcharge of 5.5%. UK Co did not qualify under the PSD for nil WHT on the dividends but was able to reclaim WHT in excess of the treaty rate of 15%. However, the German tax authorities denied reimbursement of the 15% on the grounds that UK Co did not comply with the evidential requirement provided by the German law, following the decision in Commission v German [C-284/09].
For portfolio investments, the German rules on dividend withholding tax refunds to a EEA/non resident company require written proof from the overseas tax authority that neither the foreign recipient company nor any of its direct or indirect shareholders is able to offset the German withholding tax, or deduct the tax as an operating cost or a business expense. In contrast, German corporate recipients are allowed to offset the tax in full against German corporate income tax payable, with reimbursement of any withholding tax in excess of the corporate income tax liability and without further documentary evidence.
UK Co’s shareholder was a listed company, and it was not possible for UK Co to provide the documentary evidence required under German law. Given the difference in treatment between German and foreign divided recipients and the practical impossibility of foreign dividend recipients to provide the required evidence, the case was referred by the Cologne Finance Court to the CJEU.
At the initial hearing by the Cologne Finance Court, the Court decided to stay the proceedings and to refer to the Court of Justice the question as to whether Article 56 EC (now Article 63 TFEU) precluded a national tax provision, such as that at issue in the main proceedings, which differentiated between resident and non resident shareholders and restricted free movement of capital.
After various considerations, the CJEU held that Article 63 TFEU must be interpreted as precluding a provision of a Member State’s tax legislation which makes the reimbursement of tax on income from capital paid on dividends from ‘free-float’ shares received by a company established in another Member State subject to proof that that tax cannot be set off or its set-off carried forward in favour of that company, or in favour of its direct or indirect shareholders, nor deducted by that company as work-related outgoings or an operating cost, whereas such a condition is not provided for as regards reimbursement of tax on income from capital paid by a resident company receiving the same type of income.
It is noted that the Advocate General came to a similar conclusion in his opinion.
If you would like more information on this decision, please contact Keith Rushen on 0207 486 2378.
Contact Us