Germany: Application of EU Parent-Subsidiary Directive when partnership acts as intermediary (court decision)

The prerequisites for fully refunding the withholding tax in Germany were met.

The prerequisites for fully refunding the withholding tax in Germany were met.

Germany’s Federal Tax Court (BFH) held that the requirements of the EU Parent-Subsidiary Directive are met when an asset management partnership acts as an intermediary.

The case identifying information is: I R 77/17 (18 May 2021)


In Germany, dividends received by a foreign corporation from a domestic corporation are generally subject to 25% withholding tax. However, according to the Parent-Subsidiary Directive, the recipient of the dividend has a claim for refund of the withholding tax withheld and paid. To obtain a refund, the creditor must file an application with the Federal Central Tax Office (BZSt). Nevertheless, the German refund regulation (which transposes the EU Parent-Subsidiary Directive into national law) also requires that the creditor holds at least a 10% direct interest in the German corporation.

  • In the case, the taxpayer (a cooperative under Dutch law) held a 33.6% share in a German asset management partnership (GbR, civil law partnership). The GbR, in turn, held a 100% share in a German corporation (AG, stock corporation).
  • In the year at issue (2014), the AG distributed a dividend to the GbR. The AG withheld 25% withholding tax at the expense of the taxpayer and remitted it to the local tax office.
  • In June 2014, the taxpayer filed an application for the refund of the full amount of withholding tax with the BZSt.

In dispute was whether the taxpayer held a direct interest in the German AG within the meaning of the EU Parent-Subsidiary Directive.

Court decision

The BFH took the same view as the Cologne Lower Tax Court—that there was a direct holding despite the GbR acting as an intermediary.

Even though the asset management partnership was the legal owner of the investment in the German AG under civil law, a tax-based perspective was in fact authoritative for fulfilling the requirements of a direct invest­ment within the meaning of the German refund regulation. Accor­dingly, an asset management partnership was not subject to income tax.

Pursuant to the "transparency principle,” the profits generated were directly and solely attributable to the partners that were subject to taxation. The same rule applies to the partnership's assets that are proportionally attributable to the partners. Therefore, from an economic point of view, a "look-through" approach was to be taken with respect to the asset management partnership. This is also true for assessing the required minimum holding of 10%.

Consequently, the prerequisites for fully refunding the withholding tax in Germany were met.

Read an October 2021 report [PDF 337 KB] prepared by the KPMG member firm in Germany


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