Withholding tax refunds: New ruling aims to accelerate procedures for foreign companies in Germany

The Federal Fiscal Court (BFH) has ruled that foreign shareholders who are entitled to a refund of withheld capital gains tax on profit distributions are entitled to interest under EU law. This generally applies three months after the application for a refund of the excess capital gains tax is submitted. The Ecovis experts explain more.

Under German domestic regulations, if foreign companies receive dividends from German subsidiaries or license fees from domestic customers, withholding tax is due on this, which must be paid to the German tax office. In the case of dividends, the withholding tax is 25% capital gains tax + solidarity surcharge. Withholding tax of 15% is normally due on royalties and other items, such as performances by foreign artists in Germany. Withholding tax on interest, e.g. from cross-border intra-group loans, is not levied in Germany.

The withholding tax can be partly or completely reduced through the provisions of double taxation agreements or EU directives. However, corresponding applications at the German Federal Central Tax Office are subject to a strict review to prevent abuse. This can take up to 2 years, or even longer in individual cases.

Are you entitled to a refund? We can help you claim it quickly and possibly even with interest.

Armin Weber, Auditor, Tax Advisor, ECOVIS Wirtschaftstreuhand, Munich, Germany

The significance of the ruling for companies

Thanks to a new ruling by the BFH (February 25, 2025, VIII R 32/21), there is now hope of faster refunds. The court is of the opinion that the foreign applicant is entitled to interest if the refund is delayed without any indication of abuse. In these cases, the court feels that a review period of 3 months is appropriate. The ruling concerned an application by the EU Parent-Subsidiary Directive, but these principles can possibly also be applied to refunds in the context of double taxation agreements, as well as to other cross-border withholding tax situations. The same may then also apply to applications for exemption in advance. Under German regulations, the interest rate on the refund amount is currently 1.8% per year.

There is good reason to hope that the German tax authorities will take the ruling as an opportunity to reform the procedure for refunding withholding tax to foreign applicants. Further developments remain to be seen.

For further information please contact:

Armin Weber, Auditor, Tax Advisor, ECOVIS Wirtschaftstreuhand, Munich, Germany
Email: armin.weber@ecovis.com