Credit for foreign prohibition on investment income. Taxes

Credit for foreign prohibition on investment income.  Taxes

According to a decision by the Hessian FG, the foreign foreign withholding tax on investment income can be offset against the domestic business tax, provided that the related double taxation agreement has a provision to be offset against the domestic income taxes.

Canadians withhold tax on investment income

As a matter of judgment, the plaintiff is a GmbH whose business objective is capital investment. GmbH holds stakes in two Canadian corporations with 0.22% and 9.99% and derives profit distributions from which Canadian withholding taxes were withheld on investment income. The plaintiff seeks credit for these withholding taxes against the trade tax. The tax office disallows the credit because there is neither a standard in the trade tax law that can regulate transactions, nor is the tax consistent with the foreign tax trade.

Credit against business tax

The action is acceptable and well established. The plaintiff is entitled to credit the retained Canadian moratorium against the trade tax. This is the result of Art 23, paragraph 2, letter B, double letter. Aa DBA Canada, Art. 10 DBA Canada Section 26 Article 1 sentence 1 No. 1 KStG, Section 34C Article 6 sentence 2 with application compatible with EStG.

Section 8b (1) KStG basically exempts dividends from tax, according to section 8 (5) sentence 1 GewStG, however, according to section 8b (1) KStG, dividends that remain unrecognized are commercial operations. The benefit from should be added back, as long as these do not meet the requirements of Section 9 No. 2a GewStG or 79 No. 7 GewStG (minimum participation of 15%).

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This is in line with the cases presented here with 0.22% and 9.99%, so that the tax-exempt dividend under KSGG should be added back for business tax purposes and is therefore included in business income. Thus, there is double taxation in the legal sense, as Germany and Canada impose the same tax item and the same taxpayer for the same period.

In the opinion of the FG, this double taxation is avoided by compensating the Canadian tax on dividends against the German tax (Art. 23) (2) letter B double letter and DBA Canada).

It is a burden to add

Positive decision should be welcomed for taxpayers, as it 9 No. 2a GewStG and No. 9 No. 7 opposes the provisions of GewStG, which represents a considerable burden for commercial enterprises by adding a minimum of credit to foreigners. With a moratorium on trade tax. However, it must be stated that the amendment has been approved.

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