Germany: Withholding tax exemption denied (lower tax court decision)

A lower tax court decision concerning withholding tax under the German Anti-Treaty/Directive Shopping Rule

A lower tax court decision concerning withholding tax

The Lower Tax Court of Cologne held (2 K 1483/19) that a taxpayer was not entitled to an exemption from German withholding tax under the German Anti-Treaty/Directive Shopping Rule (section 50d (3) EStG).


Dividend payments from Germany to other EU member states are always subject to withholding tax, irrespective of the EU Parent-Subsidiary Directive. Withholding tax can only be waived if the foreign payee receives a so-called exemption certificate from the German Federal Central Tax Office (BZSt) upon application. However, in order to do so, the recipient must fulfil certain substantive requirements in accordance with section 50d (3) EStG.


A Spanish corporation that invested in German real estate through a German limited liability company (GmbH) sought a German withholding tax exemption certificate on dividends received from the GmbH, which it forwarded to its two Spanish owner-managers. The corporation had no physical offices of its own and only had one employee resident in Germany. The BZSt determined that section 50d (3) EStG precluded issuing the requested exemption certificate, and the lower tax court agreed.

The Court of Justice of the European Union (CJEU) held in 2017 and 2018 that section 50d (3) EStG violated European law due to its strict substantive requirements, and the provision was therefore revised. The new version took effect on 9 June 2021 and is in principle applicable to all open cases. However, because the dividends at issue in the case were received prior to the effective date of the new version, the court considered the case under both the old and the new versions of section 50d (3) EStG.

Under the old version of section 50d (3) EStG, the taxpayer must be allowed to prove that there is no purely artificial arrangement for the purpose of obtaining a tax advantage. However, the court was unconvinced that the taxpayer’s involvement in the arrangement was not purely artificial. If the two owner-managers had received the dividends directly, they would have been subject to 15% withholding tax and would not have been entitled to a full exemption. In addition, the taxpayer did not carry out any significant economic activity beyond passing on the dividends. Under the new version of section 50d (3) EStG, the mere forwarding of dividends is similarly insufficient to fulfill the substantive requirements.

Read an October 2022 report [PDF 259 KB] prepared by the KPMG member firm in Germany 


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