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Fund Taxation Alert 2017-02

Fund Taxation Alert 2017-02

WHT reclaims Germany – KPMG launches court case for Luxembourg SICAV



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WHT reclaims Germany – KPMG launches court case for Luxembourg SICAV

In a view of clarifying whether the German legislation with regard to outbound dividend distributions to foreign investment funds is EU Law compliant, KPMG has successfully launched a test case for Luxembourg, Belgian and French funds. The case is now pending before the Frankfurt Tax Court (Az. 4 K 2079/16) the outcome of which may have an impact worth EUR 2 billion.


The current German tax law foresees a withholding tax (“WHT”) of 26.375% on dividend distributions irrespective of the recipient’s place of residence. Whereas resident investment funds can claim a refund of WHT, foreign investors remain burdened with a final WHT.

Nevertheless, no clear rules exist in Germany regarding the competence of tax offices for treating WHT reclaims filed by foreign investment funds on the basis of EU Law. Following this uncertainty, German tax offices refused to issue a decision and all WHT reclaims were put on hold until a court decision clarifies on the competency. In its latest statement the German court of auditory clearly stated that the ministry of finance estimates the refund claims amount to EUR 2 billion (up to 2012) with an accrued late interest of EUR 120 million per year.

Development and news

Initiating the test case KPMG seized the opportunity to file an action against the inactivity of the German tax authorities and push the German authorities to issue a decision on the multiple WHT reclaims filed over the past years.

With the first decision issued in the pending cases, the tax office expectedly states that the German rules (§11German Investment Tax Act) should not constitute a restriction on the free movement of capital (Art.63 Treaty on the Functioning of the European Union), since in the case under review, the discriminatory tax treatment of foreign investment funds in respect of the WHT levied should be justified by the principle of coherence of the tax system (i.e. WHT levied as tax credit available at the level of the investor in the fund).

This decision brings the case to the next level where the Tax Court in Kassel is likely to issue a decision or refer the case to the ECJ for a clarifying judgment.

Action points

KPMG has implemented for its clients a multiple-level approach, covering any potentially competent tax office when filing the WHT reclaims: the German Federal Tax Office, the Custodian Tax Office, the Main Local Tax Office and the Distributing Company’s Local Tax Office. Please refer to the E-Alert of October 2011 (PDF 68 KB). Given the recent developments, we strongly recommend to:

  • Submit an inaction recourse for your funds which have initiated WHT reclaims until a final decision has been issued by the ECJ; and
  • Regularize the claims to comply with the multi-level approach addressing the WHT reclaims to all potential competent tax offices (if this has not been initiated previously).

KPMG can assist you with a compliance check of your WHT reclaims and initiate regularizations accordingly.

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2020 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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