German Federal Fiscal Court ruling potentially provides reduced withholding rates to certain US entities
By Timothy Santoli, Rich Williams and Ryan Zucchetto
In a decision dated 26 June 2013 (Doc No I R 48/12, original available here), the German Federal Fiscal Court (a court of last resort in Germany over tax and custom matters) was tasked with determining whether an ‘S’ corporation (a US corporation that is a pass-through for US tax purposes but not for German tax purposes) is considered a US resident under the 2006 protocol of the German-US income tax treaty (the Treaty). Article 10, Paragraph 2 of the Treaty provides in part that if a German company pays a dividend to a US resident, German withholding tax imposed on the receipt of such dividend shall not exceed (i) five per cent if the beneficial owner of the dividend is a company that directly owns at least 10 per cent of the voting stock of company paying the dividend, or (ii) 15 per cent in all other cases. Article 1, Paragraph 7 of the Treaty generally states that if ‘an item of income… derived by or through a person that is fiscally transparent’ pursuant to US or German law, then ‘such item shall be derived by a resident of a State to the extent that the item is treated for the purposes of the taxation law of such State as the income, profit or gain of a resident.’
In the case, the S corporation, a 50 per cent shareholder of a German company, received dividends from the German company. The German court held that the S corporation was considered a US resident for purposes of the Treaty and thus subject to a reduced withholding tax rate of five per cent. In interpreting Article 1, Paragraph 7 of the Treaty, the German Federal Fiscal Court determined that the two references to ‘resident’ did not necessarily imply the same resident…
Click on the link below to read the rest of the Dentons briefing.
Sign in or Register to continue reading this article
It's quick, easy and free!
It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.Register now
Why register to The Lawyer
In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.
Identify the major players and business opportunities within a particular region through our series of free, special reports.
Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.
More relevant to you
To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.
News from Dentons
News from The Lawyer
Briefings from Dentons
Dentons considers one of the key aspects of the judge’s findings as between UBS and KWL.
The FCA has published the results of two reviews into how firms manage their financial crime risks, together with proposed guidance on financial crime systems and controls.
Analysis from The Lawyer
Which firms are cutting it in this era of slimline rosters, and who are the GC new brooms making clean sweeps? The Lawyer can reveal all
The continent’s boom in natural resources and renewable energy is sparking an infrastructure drive