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AG Opinions Issued Finding that German Capital Income Tax Refund Conditions Violate EU Law — Orbitax Tax News & Alerts

On 20 January 2022, an opinion was issued from Advocate General (AG) Collins of the Court of Justice of the EU (CJEU) for a preliminary ruling on whether German refund (reimbursement) conditions for withholding tax on certain capital income violate EU Law. The case and opinion are summarized as follows.

Introduction

The request for a preliminary ruling from the Finanzgericht Köln (Finance Court, Cologne, Germany) concerns the compatibility, with the EU rules governing the free movement of capital, of the conditions under which German tax legislation permits non-resident companies to obtain the reimbursement of a withholding tax on income from capital consisting of dividends from minority shareholdings in companies established in Germany. The request arises in the context of a challenge by ACC Silicones Ltd to the refusal by the Bundeszentralamt für Steuern (Federal Central Tax Office, Germany) to allow claims for the reimbursement of that tax, which had been withheld and paid for the years 2006 to 2008 inclusive.

Referring court queries

In the first place, the referring court queries whether the fact that reimbursement of withheld tax on income from capital to companies resident abroad that have an equity holding of less than 10% or 15% in a resident company is subject to stricter conditions than reimbursement of that tax to resident companies that have an equivalent equity holding in a resident company is contrary to Article 63 TFEU. Indeed, under point 5 of the second sentence of Paragraph 32(5) of the KStG, withheld tax is reimbursed to foreign companies only if they, or their direct or indirect shareholders, cannot offset it or deduct it as an operating cost or as work-related outgoings. The referring court also points out that the requirement, laid down in the fifth sentence of Paragraph 32(5) of the KStG, that proof of the foregoing must be provided in the form of a certificate from the foreign tax authorities does not apply to the reimbursement of tax on income from capital to resident companies. It is unsure whether those rules, which, according to it, constitute an interference with the free movement of capital, are justified in the light of Article 65(1)(a) TFEU and of the criteria established by the Court in, inter alia, the judgment of 8 November 2007, Amurta (C 379/05, EU:C:2007:655).

In the second place, in the event that the abovementioned national rules are considered to be compatible with the free movement of capital, the referring court queries whether the requirement of proof imposed by the fifth sentence of Paragraph 32(5) of the KStG on companies resident abroad receiving dividends from 'free-float shares' complies with the principles of proportionality and effectiveness where, as in the present case, it is practically impossible for those companies to provide such proof.

AG Conclusion

In the opinion, AG Collins concludes that the CJEU should answer the first question referred for a preliminary ruling as follows:

Article 63 TFEU precludes a national tax provision, such as that at issue in the main proceedings, which, for the purposes of the reimbursement of tax on income from capital, requires a non-resident company which receives dividends from equity holdings and does not meet the minimum equity holding threshold laid down in Article 3(1)(a) of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, as amended by Council Directive 2003/123/EC of 22 December 2003, to prove, by means of a certificate from the foreign tax administration, that the tax cannot be offset by a shareholder with a direct or indirect equity holding in that company or be deducted by the latter company or by a shareholder with a direct or indirect equity holding in it as an operating cost or as work-related outgoings in the State of residence, in the case where such proof is not required, for the purposes of the reimbursement of tax on income from capital, from a company with the same level of equity holding which is resident in national territory. In order to be compatible with Article 63 TFEU, such a national provision must reimburse the tax on income from capital to the recipient non-resident company to the extent that the tax cannot be offset in the State of residence pursuant to any applicable convention for the avoidance of double taxation. Where only partial set-off is possible in the State of residence, the source State must reimburse the difference.

Considering the answer to the first question, no answer is given (needed) regarding the second question.