Withholding foreign tax withholding tax on investment income can be offset against domestic trade tax in accordance with a ruling by Hessian FG, provided that the relevant double taxation agreement provides that it is offset against local income taxes.
Withholding Canadian taxes on investment income
In case of judgment, the plaintiff is a limited liability company whose business objective is to invest capital. The GmbH owns stakes in two Canadian companies of 0.22% and 9.99% and has received dividends from these two companies, from which Canadian taxes on investment income have been withheld. The plaintiff is seeking credit for this withholding tax against the trade tax. The tax office rejects this accreditation because there is no standard in the trade tax law that can regulate the accreditation, and a foreign tax is not a tax corresponding to a trade tax.
Credit against trade tax
Action is acceptable and justified. The claimant has the right to add the Canadian withholding tax withheld in exchange for the business tax. This results from Article 23, paragraph 2, the letter B, the double letter. aa DBA Canada, Article 10 DBA Canada in conjunction with the corresponding application of Section 26 Paragraph 1 Sentence 1 No. 1 KStG, Section 34c Paragraph 6 Sentence 2 EStG.
Section 8b (1) KStG essentially exempts dividends from tax, according to Section 8 (5) Sentence 1 GewStG, however, dividends that are not recognized in accordance with Section 8b (1) KStG should be added back to the profit from Business operations, unless these do not meet the requirements of Section 9 # 2A of GewStG or Paragraph 9 # 7 of GewStG (minimum engagement 15%).
This is the case with the posts shown here of 0.22% and 9.99%, so that tax-free dividends under the KStG must be returned for trade tax purposes and thus included in the business income. Thus, there is double taxation in the legal sense, because Germany and Canada impose a similar tax on the same taxpayer for the same tax item and period.
In the opinion of the FG, this double taxation is avoided by balancing the Canadian tax on dividends against the German income tax (Article 23 (2) double-letter b aa DBA Canada).
Their addition is a big burden
The positive judgment of taxpayers should be welcomed, as it conflicts with the provisions of Article 9 # 2A of GewStG and Paragraph 9 # 7 of GewStG, which represent a significant burden on businesses by adding at least one credit to foreign appropriations withholding tax on trade tax. However, it must be noted that the review was approved.