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The Federal Tax Court has handed down an important ruling on the interpretation of a key capital gains exemption in German corporate tax law (ruling of 6 July 2000 - I B 34/00 - DB 2000, 1940).
1. Background
§ 8b (2) KStG creates an exemption for the capital gain realised by a corporation on the disposition of shares in another corporation. Under old corporation tax law, the exemption was limited to dispositions of shares in foreign corporations. To qualify for the exemption, the selling corporation had to be entitled, with respect to the shares sold or otherwise disposed of, to a dividends received exemption under a tax treaty or to an indirect foreign tax credit under § 26 (2) or (3) KStG. Under new corporation tax law, the capital gain exemption applies to dispositions of shares in
