Clifford Chance
Newsletter, Tax, englisch, 'Taxation of portfolio dividends'
12 March 2013
By the end of last week, the Upper and Lower House of the German Parliament (the Bundesrat and Bundestag) passed a new law abolishing the tax benefit on dividends where the shareholding is less than 10% (portfolio dividends (Streubesitzdividenden)).
The new law is designed to remedy Germany's tax treatment of portfolio dividends which contravenes EU law. In its ruling of 20 October 2011 (C-284/09), the European Court of Justice (ECJ) held that Germany violates the principle of free movement of capital within the EU (EU-Kapitalverkehrsfreiheit) by levying non-refundable withholding tax (Abgeltungswirkung) on dividends paid to corporate shareholders domiciled in the EU/EEA. The German withholding tax regime is discriminative in that German resident corporate
shareholders receive a tax credit or tax rebate in the amount of such withholding tax whereas non-German residents do not.
