APPENDIX 6 SURVEY DATA 11 OCTOBER 2011

Transcription

1 APPENDIX 6 SURVEY DATA 11 OCTOBER 2011

2 Study on the impact of several alternative solutions to the double taxation problems presented by source country withholding taxes on cross-border dividends paid to individual and portfolio company investors within the EU Country: France I. General - Investor categories The study must address the taxation of dividends paid by a publicly listed company to the following categories of investors who are all assumed to be based in an EU member state: 1. Individuals with shareholdings below or above 10% of the capital of the distributing company. 2. Non-financial companies with shareholdings below 10% of the capital of the distributing company. 3. Life insurance companies with shareholdings below 10% of the capital of the distributing company. 4. Pension funds with shareholdings below 10% of the capital of the distributing company. 5. Collective investment vehicles (CIVs) with shareholdings below 10% of the capital of the distributing company. The term CIV covers vehicles: (i) with or without legal personality; (ii) which are recognized as separate entities or disregarded for tax purposes; (iii) which are subject to full tax, partially exempt from tax, or fully exempt from tax; and (iv) which are covered or not covered by the UCITS Directive (Council Directive 85/611/EEC). For example, CIVs include open-ended funds (e.g. mutual funds, ICVC, OEIC, SICAV, and SICAF), closed-ended funds, and common funds (e.g. FCP or special investment funds). II. Outbound dividends - Source state taxation A. Taxation of CIVs and pension funds Is a nonresident pension fund or CIV of another EU member state treated as a separate entity for domestic tax purposes? Please explain Is a nonresident pension fund or CIV of another EU member state eligible for tax treaty benefits on its own behalf, e.g. reduced WHT on dividends? Please explain. See paragraphs of the 2010 OECD Model; and paragraphs of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (Paris: OECD, 2010). Yes, the French tax authorities (FTA) do not accept the tax transparency as detailed below. Further to a Supreme tax Court decision (Diebold Courtage dated October ), the FTA modified its position on outbound payments to tax transparent entities (March 29, 2007). According to these guidelines, members (not the partnership itself) of foreign tax transparent partnerships may benefit from the tax treaty entered into between France and the State in which they are resident on French-source passive income received though the partnership. However, the FTA clearly excluded UCITs or pension funds from the scope of its guidelines. Even if there are good arguments to support that the position of the FTA should also apply to UCITs or pension funds, the FTA s current position is to consider that pension funds and CIV are not eligible for treaty benefits (unless if specifically provided by a treaty).

3 2 Is a nonresident CIV, which qualifies for treaty benefits, viewed as the beneficial owner of dividends? Please explain. See paragraphs of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles. Do tax treaties concluded with the other EU member states contain specific rules on pension funds and CIVs? If yes, please explain. B. Domestic withholding tax What are the WHT rates under domestic tax law on dividends paid by resident companies to resident investors and nonresident investors of other EU member states per category? Special provisions may be included. Regarding CIVs, the Double Tax Treaties with Germany, Spain, Sweden, Austria and UK provide the application of the reduced rate of WHT limited to the percentage of shares held by resident of the CIVs country. Resident Nonresident Individuals NA 19% Non-financial companies NA 25% Life insurance companies NA 25% Pension funds NA CIVs: NA 25% Are reductions or exemptions from WHT provided under domestic law for nonresidents? To which categories of investors do they apply? What are the conditions that have to be fulfilled? Some domestic law or guidelines provide WHT exemption: European freedom of movement - French Administrative Guidelines (BOI 4 C-7-07 and BOI 4 C-8-07): o The companies or other entities must have their head office of effective management in EU State plus Norway and Island o Subject to CIT at the standard rate o 5% minimum capital holding for a minimum of two years o Do not have the opportunity to deduct the WHT that would be due in France EU directives - Article 119 ter of the FTC: o The companies or other entities must be subject to CIT at a normal rate o Holding company must be the beneficial owner o Head office of effective management in EU State o Holding company must be a corporation o 10% minimum capital detention for a minimum of two years (or a commitment to hold the shares for a minimum of two years + French tax repre- 2

4 3 sentative). Is WHT calculated on a gross income or net income basis? Is the taxation of dividends for domestic life insurance companies, pension funds etc. reduced because they are entitled to deduct from their tax base payments to and provisions made for the obligation towards policyholders etc.? (in some Member States dividends paid to life insurance companies etc. are subject to withholding tax and the dividends are included in the corporate tax base of the company, but no corporation tax is effectively paid on the dividends because of tax deductible provisions etc.). If the effective taxation of domestic life insurance companies etc. is reduced as described above, do similar entities established elsewhere in the EU get national treatment, that is, are they entitled to claim back the domestic withholding tax based on a calculation of their net income (dividends, less payments to and provisions for future liabilities)? If a WHT is applicable to dividends paid to resident investors, is the dividend included in the taxable income of the resident investors, and is the WHT offset against the final tax liability. Is a refund of WHT made if the WHT exceeds the final tax liability? In which cases is the levying of withholding taxes under domestic tax law in your opinion contrary to the Treaty on the Functioning of the European Union (TFEU)? In this respect please consider Article 48 of the Appendix 2 of the French Tax Code («FTC») provides that the WHT is levied on gross income of dividend. Pension funds and life insurance companies are allowed to deduct provisions as long as they meet the conditions of deductibility. No. The Aberdeen case (CJCE, June 18, 2009, C-303/07), Aberdeen Property Fininvest Alpha Oy) has stated that articles 43 EC and 48 EC must be interpreted as precluding legislation of a Member State which exempts from withholding tax dividends distributed by a subsidiary resident in that State to a share company resident in 3

5 4 if any tax provisions applicable solely to residents mean that their effective tax rate on dividends is significantly reduced. Please provide the text of the relevant legal provisions. C. Withholding agent Is the withholding agent the company itself or a financial intermediary? In the case of a financial intermediary, does it need to be a resident entity? If so, what is the provision of the law that prohibits the use of foreign intermediaries? Who is liable in case of noncompliance with the withholding tax obligation? What standard of liability is applied? that State, but charges withholding tax on similar dividends paid to a parent company in the form of an open-ended investment company (SICAV) resident in another Member State which has a legal form unknown in the law of the former State. Such a difference in tax treatment of dividends between parent companies based on the place where they have their seat constitutes a restriction of freedom of establishment, prohibited in principle by Articles 43 EC and 48 EC, in that it makes it less attractive for companies established in other Member States to exercise freedom of establishment and they may, in consequence, refrain from acquiring, creating or maintaining a subsidiary in the Member State which applies such different treatment. The article 119 bis of the French Tax Code provides a WHT for non-resident whereas French residents are not subject to WHT. (See more details in Appendix 3). Both can be withholding tax agent No The company paying the dividends or the paying agent, if any, is liable in case of noncompliance with the withholding tax obligation. In such a case, the penalties are as follows: For late payment: application of a penalty of 5% of the sum due in addition to the late payment interest, computed at a rate of 0.4% per month; For late filing and late payment or for lack of filing: application of a penalty of 10% (40% in case of non-filing in the 30 days after a formal notice) of the sum due in addition to the late payment interest, computed at a rate of 0.40% per month; For insufficient or incorrect return: application of the late payment interest, computed at a rate of 0.4% per month plus a potential penalty of 40% of the sum due in case of deliberate disregard (80% in case of fraud or abuse of law). For payment not by bank transfer: application of a 0.2% penalty on the sums not paid by bank transfer. 4

6 5 D. Relief for juridical double taxation for nonresidents What are the WHT rates for nonresidents See appendix 1 on portfolio dividends under tax treaties with other EU member states? Is a nonresident CIV, which disqualifies for treaty benefits because it is not treated as a person or as a resident, entitled to a reduced treaty rate on behalf of its investors? In the affirmative, it would not be necessary for each individual investor of a CIV to submit its own request for treaty benefits. If yes, No except if specifically provided in a treaty as explained in IIA above (such as the French / German tax treaty) Regarding CIVs, the article 25 B 4 of the Double Tax Treaty between France and Germany provides the application of the reduced rate of WHT limited to the percentage of shares held by resident of the CIVs country: Undertakings for collective investment in transferable securities (UCITS) located in one Contracting State where they are not subject to the tax referred to in Article please explain. E.g. does it matter 1 paragraph (2) 1.c) or paragraph (2) 2. b.), and which receive whether the investors of the CIV are resident in the same member state as the CIV or in other member states (triangular situation), whether the CIV is publicly listed, etc.? dividends or interest resulting from a source in the other Contracting State, may globally apply for the tax reductions, exemptions or other deductions referred to in the Convention for that portion of such income corresponding to the rights held in the UCITS by the residents of the first-mentioned State. In a situation, where a nonresident CIV does not qualify for treaty benefits and it Depending on the number of investors, practical issues may arise. is not entitled to a reduced rate on behalf of its investors, are the individual investors of the CIV in fact requesting a WHT reduction, or do practical issues prevent this from happening? Is the relief from WHT applied at source or by means of a refund procedure? For CIV, the relief from WHT is achieved by a refund procedure. In other case, relief at source is applicable. E. Relief at source procedure for nonresidents If withholding tax relief is provided at The debtor is expected to liquidate withholding tax due filing form source, please explain how the procedure works and what the roles are of the any) no later than the 15th day of the month following the pay and to pay the corresponding tax to the French Revenue (if different actors involved. ment of the dividends. To benefit from the reduced rate (or the exemption), the forms 5000 and 5003 must be received prior to the dividends payment. Only one form 5000 must be submitted for the year but a form 5003 must be submitted before each payment (each month). Do different relief at source procedures Same procedure apply depending on the investor and/or 5

7 6 type of reduction, i.e. whether provided by tax treaties or domestic law. What kind of documentation must be provided by the investors to obtain WHT tax relief at source? Please distinguish between domestic and treaty relief if the required documentation is different. How often must a nonresident investor document to be eligible for tax treaty benefit? E.g. once a year, upon each distribution, etc. F. Refund procedure Is a refund made by the tax authorities or the withholding agent? At what time may an investor apply for a refund? E.g. upon declaration or receipt of dividend, year end, specific date, etc. Are financial intermediaries allowed to submit refund claims on behalf of their investors? If yes, under which conditions? Are there standardized forms to be used to submit a refund claim? Is there a central office within the tax administration which handles all refund claims? Is there a deadline for claiming a refund? In the affirmative, is the deadline the same as the ordinary statute of limitation? Are the deadlines the same for domestic and cross-border dividends? If not, specify the articles of the law giving rise to the difference in deadlines. What kind of documentation must be provided by the investors in order to obtain a refund? Please distinguish For treaty relief, forms filed by (a) the recipient, i.e. form 5000 named Certificate of residence and form 5001 and; (b) the debtor, i.e. form Once a year. Tax authorities. Immediately upon payment of undue WHT.. Person acting on behalf of the claimant, provided that he provides the FTA with a copy of the agency contract that he entered into with the claimant. No If the claimant is a French resident, the claim is sent to its tax office. If the claimant is a non-resident, the claim is sent to the nonresident tax office. Normally, deadline to reclaim WHT is 31 dec of the year following payment (i.e. WHT paid in 2010 can be reclaimed until 31 Dec 2011). Based on Aberdeen case law, we try to support that an extended reclaim period is applicable i.e. WHT suffered between January 2006 and December 2009 (in that case, the claim must be filed before December 31, 2011). For nonprofit organizations, the reclaim must be filed before December 31, 2011 regarding the WHT suffered between January 2006 and December For treaty relief, forms filed by (a) the recipient, i.e. form 5000 named Certificate of residence and 6

8 7 between domestic and treaty relief if the required documentation is different. form 5001 and (b) the debtor, i.e. form The signed version of these documents should be joined to the claim (compulsory requirements). For a reclaim based on infringement of EU principles (i.e. Aberdeen case) Forms 2777 and dividend tax vouchers for each distribution; A certificate of residence certifying that the UCIT is under the EU directive ; Dividend information summarized in an excel worksheet ; Prospectus and Supplementary Prospectuses. How often must a nonresident investor document to be eligible for tax treaty benefit? E.g. once a year, upon each distribution, each request, etc. How long does it usually take to obtain a refund? For nonprofit organization (pension funds), Completed questionnaire for confirmation of pension fund status ; Copy of by-laws, constitutional documents, prospectuses and/or description of the legal characteristics of the pension fund; Copy of the minutes of the shareholders meetings, the detail of the main expenses and income, the payroll of the directors and the financial statements; Tax vouchers; Forms 2777 or a certificate issued by the paying agent evidencing the amount of WHT paid ; Details on dividends received o Name and address of the distributing company o Number of shares held o Class of shares (if relevant) o Date of the dividend payment o Gross dividend o Tax withheld o Dividend net of tax o Name and address of the paying agent Certificate of tax residency covering the relevant years of reclaim. Once a year. It depends (from a couple of months for treaty reliefs to several years in case of reclaims) 7

9 8 Are there any direct costs, duties, etc. No associated with claiming a refund other than costs to professional service providers? If a financial intermediary makes a refund claim on behalf of the investor, No standard fees what is the approximate amount of fees that will be charged? Is an investor entitled to interest on a Yes in case of an administrative reclaim (eg based on the Aberdeen case refund? If yes, please explain. law). G. Relief for economic double taxation Which corporate tax system is applicable? E.g. (i) classical, (ii) schedular (single, multiple, half-income), (iii) imputation, or (iv) exemption. See paragraph 2.2 in COM(2003) 810 final. Is the corporate tax system applied identically for resident and nonresident France has shifted from an imputation system to a (single) scheduler system, that is taxation at both the level of the company and the shareholder, but the taxation of the shareholder is reduced compared to ordinary taxation (either 19% tax rate or 40% exemption). No. The tax rates applied to resident and non-residents are not identical. taxpayers per investor category with respect to dividends from a resident company? Please explain. H. Exchange of information Is exchange of information made with Yes other EU member states regarding payment of dividends? On request In the affirmative, are information provided automatically, on request, or spontaneously? III. Inbound dividends - Residence state taxation A. Taxation of CIVs Are resident CIVs treated as separate entities for domestic tax purposes? There are two types of French CIV: SICAV and FCP. SICAV are not treated as transparent. FCP are co-ownership of assets and could be considered as tax transparent. How is tax neutrality achieved between direct investments and indirect investments through CIVs? Entity CIV level Investor level SICAV Exemption of corporate Taxation of dividends income tax FCP Exemption of corporate income tax Taxation of dividends 8

10 9 Does the taxation of CIVs depend on No whether the investors are resident or nonresident? B. Taxation of investors What is the overall domestic tax burden on dividends applicable to resident investors per category? Is the taxation of investors per category identical whether dividends are received from resident companies or nonresident companies of other EU member states, and whether dividends are received from resident CIVs or nonresident CIVs of other EU member states? If no, please explain and provide the text of the underlying legal provisions. Individuals: Dividends are assessed to income tax at the progressive income tax rates (the marginal tax rate amounts to 41%). However, resident individual shareholders are entitled to an allowance equal to 40% of the dividends. In addition, resident individuals benefit annually from a tax-free allowance ( 1,525; double for couples). However, resident individuals have an option to subject the full amount of dividends to a final levy at a rate of 19% (31.3% with the 12.3% social taxes). Companies: under certain conditions, the dividends could benefit from the exemption (plus the 5% lump sum) provided by the parent-subsidiary regime, if it is not the case, the dividends are subject to the CIT at standard rate (i.e % maximum). Pension funds / non for profits : CIV (SICAV/FCP): 0% Taxpayer Companies CIVs Individuals yes yes Non-financial companies Life insurance companies yes yes yes yes Pension funds yes yes CIVs: yes yes C. Relief for juridical double taxation How is juridical double taxation caused by WHT Ordinary credit on portfolio dividends relieved under domestic tax law (full credit, ordinary credit, matching credit, exemption, deduction, etc.)? If a credit method is applied in domestic tax law, The tax credit is calculated per distribution. is the foreign tax credit calculated on an overall basis, per country, per item, etc.? How is juridical double taxation caused by WHT See Appendix 2 on portfolio dividends relieved under tax treaties with the other EU member states? In the case of the ordinary credit method, is the Gross income credit calculated on the basis of the foreign 9

11 10 gross income or net income? In case the basis is the net income, must foreign-source dividend be reduced by both expenses, which may be attributable directly to individual shareholdings, and expenses, which may only be attributed indirectly between shareholdings, such as portfolio management fees? In the case of the ordinary credit method, may excess credit be carried forward or backward? Is a resident investor of a resident CIV, which is treated as a separate entity for domestic tax purposes, but which does not suffer any domestic taxation on foreign dividends, entitled to a foreign tax credit for WHT paid by the CIV? Please explain. No A transfer of tax credit is possible See paragraph 42 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles. Is a resident investor of a nonresident CIV, which is treated as a separate entity for domestic tax purposes, but which does not suffer any taxation in the residence state on foreign dividends, entitled to a foreign tax credit for WHT paid by the CIV? Please explain. Yes a transfer is possible in theory, but difficult in practice. See paragraph 44 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles. Is a refund of foreign WHT granted to a CIV? See paragraph 43 of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles Do you see any infringements of the TFEU in No the area of relief for juridical double taxation of inbound dividends? If so, please explain and provide the text of the underlying legal provisions. D. Relief for economic double taxation Are the rules on relief for economic double taxation, if any, identical for portfolio dividends from resident companies and nonresident companies of other EU member states? For example, is an indirect foreign tax credit granted for underlying Yes. 10

12 11 foreign corporate tax if a tax credit is granted for underlying domestic corporate tax? See above II.G. In the case an indirect foreign tax credit is granted, is it possible to carry forward or backward an unused tax credit? E. Parent-Subsidiary Directive Is economic double taxation under paragraph 4.1 of the Parent-Subsidiary Directive (Council Directive 90/435/EEC) relieved under the method of ordinary credit or exemption? Is there any difference in the treatment of domestic and cross-border situations? Exemption 11

13 12 Appendix 1 Source state taxation: Outbound dividends France Recipient: Dom. WHT Withholding tax rates for portfolio dividends under domestic law and tax treaties Dividends received by investor in: Aus Bel Bul Cyp Cze Den Est Fin Ger Gre 4 Hun Ire Ita Lat Lit Lux Mal Net Pol Por Rom Slo Slo Spa Swe UK Individual Non-financial company Life insurance Pension fund CIV, with legal personality 1 CIV, without legal personality 1 Comments: 1 The application of the treaty rate is subject to the analysis of the residence country regarding the beneficiary s residence status. 2 Pension funds are subject to the rate provided they are not-for-profit entities and would be subject to the tax regime pertaining to such entities if their head office was located in France. 3 CIV managers are entitled to file requests to benefit from the application of the treaty. The tax authorities must determine the modalities of the application of the treaty rate to the CIV s. 4 The treaty between France and Greece provides for the application of the domestic withholding tax rate in force in the source state. 12

14 13 Appendix 2 Residence state taxation: Inbound dividends France Recipient: Dom. Metho d 1 Method for the elimination of juridical double taxation caused by WHT on portfolio dividends under domestic law and tax treaties Dividends received by investor in: Aus Bel Bul Cyp Cze Den Est Fin Ger Gre 2 Hun Ire 4 Ita Lat Lit Lu Mal Net Pol Por Rom Slo Slo Spa Swe UK Individual DE OC OC OC OC OC OC - FC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC DE OC OC OC OC OC OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC Non-financial company Life insurance DE OC OC OC OC OC OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC Pension fund - OC OC OC OC OC OC - OC OC OC - OC OC OC OC OC OC OC OC OC OC OC OC OC OC CIV, with legal - OC OC OC OC OC 3 personality CIV, without legal - OC OC OC OC OC 3 personality Comments : 1 The French domestic tax law does not provide for a tax credit in relation to the WHT incurred in the source state. However, the amount of the said WHT is deductible for French tax purposes. Only the net dividend remains taxable. 2 The tax credit is computed at the rate of the WHT applied on dividends in France under the same circumstances. 3 CIV managers are entitled to file requests to benefit from the application of the treaty. The tax authorities must determine the modalities of the application of the treaty rate to the CIV s. 4 No more WHT is applied on dividends distributed to France. Notes: OC = ordinary credit MC = matching credit FC = full credit Ex = exemption IC = indirect credit for underlying corporate tax DE = deduction of the WHT from the basis subject to taxation in France 13

15 14 Appendix 3 Explanation of infringement cases I. Outbound dividends source state infringement on the TFEU by the domestic WHT 1. Gross basis taxation 2. Nonresidents are not covered by special tax regimes as residents 3. WHT rates The Commission has today sent requests to Belgium, France, Greece, the Netherlands and Portugal to change various rules related to direct taxation which are disproportionate and/or discriminatory and infringe upon the fundamental freedoms set out in the Treaty of the Functioning of the EU (TFEU). The requests were sent in the form of Reasoned Opinions, the second step in the infringement procedure (Art. 258 TFEU). If there is no satisfactory reaction from the Member States in question within 2 months, the Commission may decide to refer the relevant matter to the Court of Justice (IP/10/300). The Commission has formally requested that France change its tax rules which discriminate against foreign pension and investment funds. Under these rules, dividends paid to foreign pension and investment funds (outbound dividends) are taxed more heavily than dividends paid to domestic pension and investment funds (domestic dividends). A withholding tax of 25% is levied on dividends paid to pension and investment funds in other Member States or EEA countries (this rate may be reduced by bilateral tax treaties), but no withholding or other tax is levied on domestic funds. The Commission considers this to infringe the free movement of capital, as set out in the Treaty of the Functioning of the EU (TFEU) and the EEA Agreement. However the amended French finance bill for 2009 has modified the French tax law and since January 1, 2010 there is no more discrimination for pension funds which qualified as non-profit institution. The general WHT for dividends served to French or non-resident NPI amounts to. 4. Combined taxation v. separate taxation II. Inbound dividends residence state infringement on the TFEU by the domestic relief for juridical double taxation 1. Per country limitation 2. Excess foreign tax credit 14

16 15 3. Net principle and indirect cost allocation 15

17 Study on the impact of several alternative solutions to the double taxation problems presented by source country withholding taxes on cross-border dividends paid to individual and portfolio company investors within the EU Country: Germany I. General - Investor categories The study must address the taxation of dividends paid by a publicly listed company to the following categories of investors who are all assumed to be based in an EU member state: 1. Individuals with shareholdings below or above 10% of the capital of the distributing company. 2. Non-financial companies with shareholdings below 10% of the capital of the distributing company. 3. Life insurance companies with shareholdings below 10% of the capital of the distributing company. 4. Pension funds with shareholdings below 10% of the capital of the distributing company. 5. Collective investment vehicles (CIVs) with shareholdings below 10% of the capital of the distributing company. The term CIV covers vehicles: (i) with or without legal personality; (ii) which are recognized as separate entities or disregarded for tax purposes; (iii) which are subject to full tax, partially exempt from tax, or fully exempt from tax; and (iv) which are covered or not covered by the UCITS Directive (Council Directive 85/611/EEC). For example, CIVs include open-ended funds (e.g. mutual funds, ICVC, OEIC, SICAV, and SICAF), closed-ended funds, and common funds (e.g. FCP or special investment funds). II. Outbound dividends - Source state taxation A. Taxation of CIVs and pension funds Is a nonresident pension fund or CIV of another EU member state treated as a separate entity for domestic tax purposes? Please explain For foreign CIVs and pension funds, it has to be analyzed whether or not the foreign vehicle can be considered comparable to a German corporate entity. Thus, foreign corporate-type funds (e.g. SICAVs, Irish plcs etc.) can be considered separate corporate entities for domestic tax purposes, whereas contractual funds, such as, e.g. Austrian Sondervermögen cannot be considered separate entities. For the taxation of resident investors in a foreign CIV, the following rules apply: The foreign vehicle is analyzed with regard to its characteristics as a vehicle for the collective investment: if it is a vehicle for the collective investment, that invests in certain assets as listed in the Investment Act, follows the principles of risk diversification and either provides for redemption of shares or is subject to supervision similar to the German supervision, the foreign vehicle is considered a foreign CIV ( ausländisches Investmentvermögen ) within the meaning of the German Investment Tax Act (InvTA). E.g., mainly UCITS funds (independent of legal form)

18 2 Is a nonresident pension fund or CIV of another EU member state eligible for tax treaty benefits on its own behalf, e.g. reduced WHT on dividends? Please explain. See paragraphs of the 2010 OECD Model; and paragraphs of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles (Paris: OECD, 2010). and real estate funds, that are collective investment vehicles, are considered a foreign CIV, whereas vehicles that do not fall under InvTA are not considered foreign CIVs for the purpose of taxation of resident investors. Please note that the fact that a vehicle is considered a foreign CIV within the meaning of the InvTA is a question that has to be answered independently from the question of whether or not this vehicle is considered a separate corporate entity for domestic tax purposes and the answer to neither one of these questions has any effect on the determination of treaty benefits (see next question). For EC-law purposes (Denkavit-claims) we consider the comparability to a German CIV to be decisive (i.e. comparable legal entity and qualification under the Investment Act). To determine whether a nonresident pension fund or CIV is eligible for treaty benefits, it has to be considered resident in the other Contracting State. If the nonresident vehicle is not considered a separate taxable entity in its state of residence, it cannot be eligible for treaty benefits due to the fact that it cannot be considered a resident person within the meaning of the treaty. Thus, Germany would consider a foreign contractual funds not to be eligible for treaty benefits if this funds is not considered a taxable entity in its state of residence. If the foreign vehicle is treated as a separate corporate entity in its state of residence (e.g. a SICAV), it should in principle be considered eligible for treaty benefits unless it is not considered a taxable subject in its state of residence. Please note that this is a highly disputed area of tax law. Is a nonresident CIV, which qualifies for treaty benefits, viewed as the beneficial owner of dividends? Please explain. Yes. See paragraphs of The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles. Do tax treaties concluded with the other EU member states contain specific rules on pension funds and CIVs? If yes, please explain. The treaty with UK provides for a reduced WHT rate for distributions made to pension funds (Altersvorsorgeeinrichtungen). Under the treaty with France a French investment funds may claim withholding tax relief based on the quota of French shareholders 2

19 3 B. Domestic withholding tax What are the WHT rates under domestic tax law on dividends paid by resident companies to resident investors and nonresident investors of other EU member states per category? in the funds (Art. 25b para 4 DTC Germany/France). Resident Nonresident Individuals % % Non-financial companies % % Life insurance companies % % Pension funds % % CIVs % % Are reductions or exemptions from WHT provided under domestic law for nonresidents? To which categories of investors do they apply? What are the conditions that have to be fulfilled? Is WHT calculated on a gross income or net income basis? Is the taxation of dividends for domestic life insurance companies, pension funds etc. reduced because they are entitled to deduct from their tax base payments to and provisions made for the obligation towards policyholders etc.? (in some Member States dividends paid to life insurance companies etc. are subject to withholding tax and the dividends are included in the corporate tax base of the company, but no corporation tax is effectively paid on the dividends because of tax deductible provisions etc.). If the effective taxation of domestic life insurance companies etc. is reduced as Domestic WHT of 25% plus solidarity surcharge (5.5%) applies to all dividends distributed by German companies. Different treatment may apply to distributions from non-publicly listed companies, which are not elaborated on in this questionnaire, due to the restriction in the scope to publicly listed companies. Yes, non-resident corporate entities that are subject to limited corporate tax liability are granted a refund of 2/5 of the tax withheld (i.e. down to a rate of %, which equals the statutory corporate income tax rate (incl. solidarity surcharge)). The refund is granted upon application and is subject to the German antitreaty-shopping provision ( 50d para. 3 EStG (Income Tax Code Einkommensteuergesetz)). Gross basis. Life insurance companies, pension funds etc. are taxed on the dividends they receive (exemption does not apply, 8b para. 7, 8 KStG (Corporate Income Tax Code Körperschaftsteuergesetz)). They are, however, allowed to deduct payments and provisions from their taxable base, significantly reducing their taxable income. The German WHT on dividends paid to these institutions is creditable against their final tax liability (and may ultimately be refunded if the credit is in excess of the final tax liability). This treatment does not apply to Pensionskassen (which are tax exempt) and Altersvorsorge-Sondervermögen (which are treated as CIVs and are also tax-exempt). No. For non-residents, WHT is final tax burden and WHT is levied on 3

20 4 described above, do similar entities established elsewhere in the EU get national treatment, that is, are they entitled to claim back the domestic withholding tax based on a calculation of their net income (dividends, less payments to and provisions for future liabilities)? If a WHT is applicable to dividends paid to resident investors, is the dividend included in the taxable income of the resident investors, and is the WHT offset against the final tax liability. Is a refund of WHT made if the WHT exceeds the final tax liability? gross income. Payments and provisions may only be deducted if non-resident life-insurance company etc. has a permanent establishment in Germany and dividends are effectively connected with this permanent establishment. Individuals: A schedular system of taxation applies to individuals, i.e. capital income, including dividends is taxed at gross basis and a rate of % (plus church taxes if applicable). Thus, WHT levied at source is the final tax burden unless the individual proves that he is subject to a lower marginal tax rate (in which case a refund would be possible). Regular Corporations: Dividends received by corporations are exempt from corporate income tax ( 8b para. 1 KStG). 5% of deemed non-deductible expenses are subject to tax ( 8b para. 5 KStG). WHT is creditable against final tax liability, including the possibility of a refund. Dividends may be subject to municipal trade tax (at a rate of ~7% to ~17%, depending on municipality), but WHT is not credited against trade tax. Financial Investors (1): Life and Health Insurance companies and Pensionsfonds as well as other companies holding the shares as current assets ( held-for-trading exception ) are taxed on the dividends they receive (exemption does not apply, 8b para. 7, 8 KStG (Corporate Income Tax Code Körperschaftsteuergesetz)). Life and Health Insurance companies as well as Pensionsfonds are, however, allowed to deduct payments and provisions from their taxable base, significantly reducing their taxable income. Other companies to which the held-for-trading exception applies may deduct expenses incurred in relation to the dividends received. The WHT on dividends paid to these institutions is creditable against their final tax liability, including the possibility of a refund. Financial Investors (2): Pensionskassen are exempt from tax. They are granted a partial refund of 2/5 of tax withheld (i.e. down to %) CIVs: CIVs are exempt from tax. They may receive a full refund of any tax withheld on dividends distributed to the CIV. 4