In 2008, the local tax court of Cologne referred a case to the European Court of Justice (ECJ) as to whether the EC Parent-Subsidiary Directive applied to companies that have a legal form not specifically mentioned in the Annex to the directive. The ECJ ruled in Gaz de France (case reference C-247/08) that a French simplified stock company (société par actions simplifiée - S.A.S) is not covered by the Parent-Subsidiary Directive prior to the 2003 amendments to the directive and referred the case back to the local tax court of Cologne.
The taxpayer then raised another EC law argument to obtain relief from German withholding tax on dividends paid by the German subsidiary to its French parent company. The taxpayer based its argument on the fact that the ECJ has held in a number of cases that the levy of withholding tax on dividends paid to foreign shareholders violates the fundamental freedoms of the EC Treaty if no withholding tax is levied on dividends paid to comparable domestic shareholders or where domestic shareholders are effectively exempt from corporate income tax on such dividends (as is the case in Germany).
The local tax court of Cologne acknowledged the ECJ case law but did not address a controversial decision of the German Federal Tax Court (BFH) published in 2009 (case reference I R 53/07), where the BFH rejected this argument with regard to a Swiss company. The local tax court of Cologne, however, did not have to rule on the issue because it rejected the taxpayer’s claim for procedural reasons. The taxpayer had lodged its objection with the Federal Tax Office, (Bundeszentralamt für Steuern) which is only competent to resolve withholding tax issues where relief is claimed under a tax treaty or the Parent-Subsidiary-Directive. The local tax court concluded that reclaims of withholding tax based on the fact that the levy of withholding tax infringes the fundamental freedoms cannot be filed with the Federal Tax Office; instead, the foreign parent company would have to claim an exemption under application of the domestic rules and request a credit for tax withheld on its corporate income tax liability. This claim must be filed with the local tax office responsible under general procedural rules and not with the Federal Tax Office. The local tax court of Cologne did not specify how this local tax office can be identified if more than one participation is held by the foreign parent company. According to an unpublished tax authorities’ guidance , claims have to be filed with each local tax office to which withholding tax was paid.
The case, which is currently pending before the BFH (case reference I R 25/10), is relevant to all companies filing reclaims for German withholding tax on dividends based on the argument that the levy violates the Treaty freedoms (i.e. “Denkavit claims”). The BFH now has an opportunity to re-examine the position taken in the 2009 decision, which involved a third country situation rather than a pure intra-community situation as in the current case, and to clarify some of the uncertainties regarding the procedural rules applying to Denkavit claims in Germany. Until the BFH issues its final decision, EU/EEA resident shareholders that have suffered withholding tax on German dividends should file refund claims with both the Federal Tax Office and the competent local tax office. If more than one participation is held, claims should be filed with all local tax offices to which withholding tax was paid.
If you have any questions, please contact the authors of this article at gtln@deloitte.de or your regular Deloitte contact.
