KPMG Germany Webpage
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§ 8b (1) KStG of the old corporation tax law permitted foreign source income that was derived by a domestic corporation free of tax under a tax treaty (or under a tax treaty in conjunction with domestic law) to be distributed free of tax to another domestic corporation. The provision thus enabled the exemption enjoyed by the corporation that originally derived the income (dividends or capital gains on the sale of shares in foreign corporations) to be passed on to other domestic corporations. (Distributions to foreign corporations were, in effect, subject to withholding tax only, at a reduced treaty rate where applicable.)
