Refund of withholding taxes made easier in Germany and possible effect on US foreign tax credits



A reduction in or exemption from German withholding taxes on German source income (such as dividends, royalties, and certain interest payments) is possible under (i) German domestic law, (ii) an applicable European Union (EU) directive, or (iii) an applicable income tax treaty.  Under the German Anti-Treaty/Directive Shopping Rule, a foreign company cannot claim German withholding tax relief if, and to the extent, the foreign company does not meet certain strict requirements.  If, however, a limitation on benefits provision of an applicable income tax treaty with Germany applies (such as Article 28 of the US‑Germany income tax treaty), the German Anti-Treaty/Directive Shopping Rule should not apply with respect to withholding tax relief.  Thus, if a US corporation invests in a German company through a non-US corporation, the German Anti-Treaty/Directive Shopping Rule generally should apply with respect to any withholding tax relief requested by the intermediate non-US corporation unless an applicable income tax treaty with a limitation on benefits clause exists between the residence country of the intermediate corporation and Germany.

On December 20, 2017, and June 14, 2018, the European Court of Justice (ECJ) found that the German Anti-Treaty/Directive Shopping Rule (prior and current versions) breached EU law (including the EU freedom of establishment).  The ECJ held that, even though the economic activities of the taxpayer consist of the management of assets of the subsidiary or its income is solely derived therefrom, this is not an abuse per se.  In response, German tax authorities issued guidance on the ECJ’s December 2017 judgment.  While the German guidance is silent on the current version of the German Anti-Treaty/Directive Shopping Rule, it relaxed the requirements to permit a non-German EU company that owns an interest as a pure holding company (i.e., lacking its own staff and infrastructure) to apply for relief from withholding tax imposed on German source dividends.

Michael Graf and Marcus Seiboth, both of Dentons’ Frankfurt office, published the article “The German Anti-Treaty/Directive Shopping Rules Are Under Fire” in International Tax Report.  They analyze the guidance issued by German tax authorities and address whether and under what circumstances non-EU companies may benefit from recent ECJ case law.

The recent ECJ decisions add to the growing body of ECJ court decisions permitting refund claims by foreign entities to recover withholding taxes paid on dividends received from companies resident in certain EU jurisdictions.  For example, in 2014, the ECJ decided that US funds (and other funds outside of the EU in a similar position) are entitled to rely on the free movement of capital under EU law enabling non-EU investment funds to recover withholding taxes from certain EU member states.1  More recently, though, on February 26, 2019, the ECJ issued two rulings involving Danish companies that paid either dividends or interest to their EU parent companies that were directly or indirectly owned by companies resident in third countries or by private equity funds with investors whose residency status was unknown.  Denmark had imposed a withholding tax on the Danish companies because the recipient of the payments (i.e., the EU parent companies) were not the beneficial owners of the payments.  The ECJ agreed with Denmark’s interpretation and noted that the freedom of establishment and free movement of capital principles cannot be relied on in the case of abusive or fraudulent acts.

Implications on claim of US foreign tax credits

Section 901 of the US Internal Revenue Code of 1986, as amended (the Code) allows a taxpayer to elect to claim a credit against its US income tax liability for foreign income taxes paid or accrued during the tax year to any foreign country.  In order for a foreign income tax to qualify for a US foreign tax credit, the tax must be (i) paid or accrued by the taxpayer; (ii) imposed on the taxpayer by a foreign country or possession of the United States; (iii) compulsory; and (iv) an income tax or a tax levied in lieu of an income tax.

The amount of foreign tax that is eligible for a credit is not necessarily the amount of tax withheld by or paid to the foreign country.  The legal and actual foreign tax liability that the taxpayer paid or accrued during the year qualifies for the credit.  This payment of tax must be made based on a reasonable interpretation and application of foreign law (including applicable tax treaties).  Thus, if it is reasonably certain that the foreign income taxes paid or accrued would be refunded or rebated if a claim was made, such foreign taxes would not be creditable.  Actual knowledge that another similarly situated taxpayer has successfully obtained a refund of foreign tax may constitute notice to the taxpayer that a claim for refund would likely prevail.  The taxpayer must also exhaust all effective and practical remedies to reduce the taxpayer’s liability for foreign tax.  Thus, it is the taxpayer’s responsibility to take all necessary steps and exhaust all available remedies with the foreign country to properly resolve the final tax liability in order for the tax to be considered due and legally owed.  Moreover, Code Section 905(c) requires a redetermination of a taxpayer’s US foreign tax credit if a foreign tax is refunded.

Thus, if an EU member state determines that a reduced withholding tax applies, two issues may arise for US federal tax credit purposes:  (i) is the withholding tax “compulsory”; and (ii) is a foreign tax redetermination required under Code Section 905(c).  Under the German guidance noted above, it appears that the German tax authorities would only allow non-German EU companies that own interests in a German company as a holding company (as opposed to non-EU holding companies) to benefit from the recent favorable case law of the ECJ.  An effect on US foreign tax credits would arise, for example, where a US corporation wholly owns an EU holding company that received dividends from a Germany company on which German taxes were withheld.  Under US tax rules, the EU holding company should qualify as a “controlled foreign corporation”.  As a result, the US corporate shareholder should generally be entitled under Code Section 960 to claim indirect foreign tax credits for deemed income inclusions attributable to its ownership of a CFC under the Subpart F and global intangible low-taxed income (GILTI) rules whether or not such income is distributed to the US corporate shareholder.  The GILTI rules were enacted by last year’s tax reform legislation known as the Tax Cuts and Jobs Act (TCJA).  If the US corporate shareholder has Subpart F income attributable to the dividends received by the EU holding company from its German investments, the US corporate shareholder should be deemed to have paid the German withholding taxes incurred by the EU holding company that is properly attributable to that income.2  Thus, if the EU holding company obtains a refund of German withholding tax imposed on the dividends it receives, the US corporate shareholder may lose the ability to claim an indirect foreign tax credit for such German withholding taxes.

On the other hand, if, for example, non-EU holding companies with German investments argue that they also benefit from the recent judgments of the ECJ with respect to German withholding taxes imposed on German source dividends, consideration must be given to whether any German withholding taxes incurred by a non-EU intermediary company that is a CFC of a US corporate shareholder are noncompulsory.  In order for the German withholding tax to be treated as noncompulsory, it must be “reasonably certain” that the amount will be refunded.  While a US taxpayer is required to exhaust all effective and practical remedies to reduce its foreign tax liability, the taxpayer is not required to pursue administrative and judicial remedy if it would be unreasonable in light of the amount at issue and the likelihood of success.  If the non-EU intermediary company successfully challenges the German guidance and obtains a refund of German withholding taxes (assuming the statute of limitations for the relevant year has not expired), Code Section 905(c) would generally require that the US corporate shareholder file an amended US tax return reducing the amount of foreign tax credit claimed for the year of the withholding tax and reflecting any additional US tax liability owed.  This is true even though the US taxpayers’ foreign refunds may not be finally adjudicated.3  Thus, in light of the growing influence of EU law on the local tax rules of EU member states, taxpayers should consider the potential benefits of withholding tax refunds, the likelihood of success, and, in the case of a US taxpayer, the implications of Code Section 905(c) if a refund of German withholding tax is obtained even though such refund is not a final determination of foreign tax liability.

  1. See previous Dentons client alerts, “An update on refund claims for EU withholding tax overpayments” (May 23, 2014) and “Opportunity to claim withholding tax overpayment on dividends received by non-EU investment funds from Europe” (April 11, 2014).
  2. For dividends paid by the German company after December 31, 2017, if the EU holding company did not qualify as a “controlled foreign corporation” (i.e., a foreign corporation in which “US shareholders” own more than 50 percent of the vote or value of the foreign corporation; for this purpose, a “US shareholder” means a US person who owns 10 percent or more of the vote or value of a foreign corporation), the US foreign tax credit rules should not apply.  If a US corporate shareholder owned 10 percent or more of the voting stock of an EU holding company that was not a CFC, the US corporate shareholder should not be entitled to claim an indirect foreign tax credit for the German withholding tax incurred by the EU holding company with respect to dividends received by the US corporate shareholder.  Effective for taxable years beginning after December 31, 2017, the TCJA repealed the Code Section 902 indirect foreign tax credit as a result of the enactment of new Code Section 245A which provides a 100 percent dividends received deduction (DRD) for foreign source dividends received by a US corporation that owned 10 percent or more of the voting stock of the foreign corporation.  Thus, if an EU holding company that is not a CFC obtains a refund of German withholding tax, there should be no adverse US tax effect to the US corporate shareholder.  Alternatively, if the EU holding company is an eligible entity and a check-the-box election was made to treat it as a pass through entity for US federal tax purposes, the US corporate owner should be treated as having incurred the German withholding tax directly under Code Section 901 and may have to reduce its US foreign tax credit claimed for the year of the withholding tax in the event of a refund (assuming the DRD rules of Code Section 245A do not otherwise apply with respect to the US corporation’s ownership of the German company).
  3. See Sotiropoulos v. Comm’r, T.C. Memo. 2017-75.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:


Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.