ARTICLE · 17 JULY 1996

057. Zero Withholding on Dividends to EU Corporations

KPMG Germany

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At the time of ratification of the Parent-Subsidiary Directive of July 1990, Germany reserved the right to collect 5 % withholding tax on dividends paid to EU parent companies by their German subsidiaries. This reservation expired on 30 June 1996. Dividends paid after this date to qualifying EU parent companies are therefore exempt from German withholding tax, subject to compliance with certain formalities. To qualify for zero withholding under the Directive as implemented in sec. 44d EStG, the parent company must have held a 25 % share in the subsidiary for 12 consecutive months at the time the withholding tax accrues. The percentage is reduced to 10 % subject to a reciprocity provision in the tax law of another EU Member State with which a tax treaty is in force.

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