The dividend reduces the profit

dividend

Table of Contents

1 overview
2 dividends and shareholders
2.1 The dividends in detail
2.1.1 Open Profit Distributions
2.1.2 Dividends from the deposit account
2.1.3 The tax-relevant point in time
2.2 The calculation example
2.3 Overview of capital gains tax on distributions
2.4 Dividends for non-resident taxpayers
3 The taxation principles in the transitional period
3.1 The transition period - principles
3.2 Impact at the shareholder level
4 Related Lexicon Articles

1. Overview

Profit distributions and dividends apply to investors and distributing companies. Because of the treatment

  1. of → distributions;
  2. of open profit distributions (→ profit distribution) and
  3. of dividend exemption for corporations (→ dividend exemption for corporations as recipients) see the corresponding lexicon article.

2. Dividends and Shareholders

2.1. The dividends in detail

According to § 20 Abs. 1 Nr. 1 and Nr. 2 EStG the following picture emerges for dividends (from the point of view of the recipient = shareholder):

2.1.1. Open profit distributions

In accordance with Section 20 (1) No. 1, investment income from capital assets includes Sentence 1 EStG expressly:

  • Dividends on stocks,
  • Profit shares from GmbH shares,
  • all payments from corporations in which the legal entity making the payment is itself the taxable person for the income generated by it (e.g. cooperatives),
  • Profit-sharing rights distributions, if the profit-sharing rights are similar to shares, i.e. profit-dependent.

In addition, benefits from Parent companies (KapG before entry in the commercial register, see § 11 Paragraph 1 and § 13 Paragraph 1 GmbHG; e.g. Vor-GmbH) and donations from foreign Legal subjects with the character of a KapG as references in this sense.

In all cases of Section 20, Paragraph 1, No. 1, Clause 1 of the Income Tax Act open Profit distributions (oGA) before. These are profit distributions that are based on a lawful resolution on the appropriation of profits under company law (Sections 58, 174 AktG and Sections 29, 46 No. 1 GmbHG).

Advance distributions are made before the annual financial statements are established (Section 29 GmbHG, Section 59 AktG). Their allocation to the OGA (or to the VGA) depends solely on whether a proper (advance) profit appropriation decision has been made.

2.1.2. Dividends from the deposit account

particularities exist in the case of dividends resulting from the tax Deposit account (→ Tax deposit account) have been financed. In the case of natural persons as shareholders, this payment is faked as a "transaction similar to sale" within the meaning of Section 17 (4) of the Income Tax Act. Insofar as the payments exceed the acquisition costs of the shareholder (and the shareholder is significantly involved within the meaning of Section 17 (1) of the Income Tax Act), this "capital gain" in accordance with Sections 17 (1) and (4) and (3) No. 40c of the Income Tax Act is also recognized according to the To record partial income procedure.

2.1.3. The tax-relevant point in time

For the time Section 11 of the Income Tax Act applies to the recording of dividends. From this principle, which states that the dividend was generally only accrued when credited to the shareholder's account, according to the rpr controlling shareholder made an exception for the GmbH. The BFH dates the inflow time for the controlling shareholder on the decision date on the appropriation of profits (BFH judgment of November 17, 1998, VIII R 24/98, BStBl II 1999, 223). As an exception to this inflow fiction, which will not change anything through a later due date regulation, only the case of Insolvency approved by the company. A later reversal of the profit distribution does not retroactively cancel its inflow. This also applies if the profit distribution was based on an accident. The cancellation of the profit distribution also leads Not negative income from capital assets for the shareholder. The repayment is a - initially irrelevant under tax law - a contribution to the company assets of the GmbH (FG Münster judgment of September 15, 2010, 10 K 3460/09 E).

2.2. The calculation example

As part of the 2008 corporate tax reform (→ 2008 corporate tax reform - an overview), the partial income method for corporate investments and the → flat-rate withholding tax for private investments were introduced. Since then, everyone in the Private wealth Accruing investment income is uniformly subject to a 25% withholding tax (plus SolZ and KiSt). A deduction of advertising expenses is generally only in the amount of the saver lump sum amounting to 801 € (§ 20 Abs. 9 EStG) possible. The final withholding tax is not applicable on application in accordance with Section 32d (6) EStG if the tax rate in the assessment procedure, including the capital income, is lower than 25% (so-called lower-cost test). In this case, the capital income determined according to § 20 EStG is subject to the individual tax rate. However, it should be noted that here, too, there is a deduction for income-related expenses that exceeds the saver lump sum Not is possible. If the requirements of Section 32d (2) No. 3 EStG are met, the taxpayer can, upon request, switch from the flat rate withholding tax system to the assessment procedure. In this case, the actual income-related expenses can be claimed (Section 32d, Paragraph 2, No. 3, Sentence 2 of the Income Tax Act).

Become Participations in corporations as business assets Held, the income is subject to 60% taxation (partial income method), accordingly distributions recognized as 100% income from participations are to be reduced by 40%. 60% of operating expenses can be taken into account to reduce tax, so that 40% of the expenses booked under commercial law and related to the distribution must be added. Regardless of this, according to Section 43 (1) sentence 3 EStG, capital gains tax is still to be withheld.

If the participation is held in private assets, introduces Application according to § 32d Abs. 2 Nr. 3 EStG (Option) in addition to applying the personal tax rate, also applying the partial income method. In addition, the actual income-related expenses in connection with the participation can be deducted (deduction of 60%, Section 3c (2) EStG) and the prohibition on loss deduction, Section 20 (9) EStG, does not apply. The option is only permissible with a stake of at least 25% (Section 32d Paragraph 2 No. 3 Letter a EStG) or at least 1% stake and a professional activity for the corporation through which the shareholder (since 1.1 .2017, cf. § 52 Paragraph 33a EStG) can exert significant entrepreneurial influence on their economic activity. If income from the distribution of a corporation, the participation of which the taxpayer holds in private assets, is to be added to the collectively taxable income due to an application for a more favorable test in accordance with Section 32d (6) EStG, the pro rata (40%) tax exemption according to Section 3 No. 40 sentence 1 letter d EStG does not apply, BFH judgment of August 29, 2017, VIII R 33/15. In order to receive the 40% tax exemption, the taxpayer must submit an application in accordance with Section 32d (2) No. 3 EStG (line 23, 24 Annex, Chapter 2016).

Example:

X-AG operates exclusively real estate management and has a dividend of € 100 million before income taxes. In preparation for the Annual General Meeting, the CEO would like to know from his CFO how much he can promise the shareholders (only natural persons) a dividend.

The term dividend is identical to the income according to Section 20 (1) No. 1 EStG, while the cash dividend is set at the actual transfer amount.

Solution:

Distributing

Corporation

Shareholders

Private wealth

withoutOption according to

Section 32d (2) No. 3 EStG

Shareholders

Business assets /

PV with option according to

Section 32d (2) No. 3 EStG

Distribution profit before taxes; no trade tax due Section 9 No. 1 Sentence 2 GewStG100,00 €
./. Corporation tax (15%)./. 15,00 €
./. KapESt (25%)./. 21,25 €
(Total withholding tax)(./. 36,25 €)
actual distribution (see note)63,75 €
Cash dividend63,75 €63,75 €
plus KapESt (§ 12 No. 3 EStG)+ 21,25 €+ 21,25 €
Dividend (within the meaning of Section 20 (1) No. 1 EStG)85,00 €85,00 €
./. tax-free amount according to § 3 No. 40d EStG./. 0,00 €./. 34,00 €
taxable income (§ 20 EStG)85,00 €51,00 €

Calculation of the tax burden for a natural person as a shareholder:

Dividend in the BV or in the PV according to the option according to § 32d Abs. 2 Nr. 3 EStG:

BMG according to TEV application see above

51 €

Dividend in PV

without option

BMG

85 €

then the individual tax rate or final withholding tax30 %40 %45 %25 %
Tax (per tax rate)15,30 €20,40 €22,95 €21,25 €
./. eligible KapESt./. 21,25 €./. 21,25 €./. 21,25 €./. 21,25 €
final tax./. 5,95 €./. 0,85 €1,70 €0,00 €
Economic calculation
including cash dividend63,75 €63,75 €63,75 €63,75 €
Net dividend after tax69,70 €64,60 €62,05 €63,75 €

Is Shareholder of the stake in a corporation (KapG), a 95% tax exemption applies if the stake is at least 10% (cf. § 8b Paragraph 1 and 5 in conjunction with Paragraph 4 KStG), see → Dividend exemption for corporations as recipients and 3.2.

2.3. Overview of capital gains tax on distributions

The KapESt pursues - comparable to the LSt - the goal of recording income from investments at the source. The KapG (referred to as the debtor of the investment income, see Section 44 (1) sentence 3 EStG) takes on the function of calculating and paying agents for the investment income. This task is taken over by the credit institutions for the other capital claims or, if banks are called in for the dividend payment (Section 45a (3) EStG).

The scope of the capital income, which is subject to the capital gains tax deduction, is based on the capital income of Section 20 of the Income Tax Act according to Section 43 (1) EStG, without being congruent with this. For example, the facts of Section 20 Paragraph 1 No. 5 and 8 EStG and Section 20 Paragraph 2 No. 2a EStG are not covered, while conversely, according to Section 8b Paragraph 1 KStG, the actually tax-exempt dividend, which a KapG of a receives another KapG, despite the fact that it is subject to the KapESt (Section 43a, Paragraph 1, No. 1 of the Income Tax Act). In the case of dividends, according to Section 43a (1) No. 1 EStG, 25% (up to VZ 2008 20%) are paid on the full amount of dividend (Section 43 (1) sentence 3 EStG: no half withholding tax!) Withheld.

These flat tax rates apply subject to Net agreement. Similar to the LSt, the assumption of the KapESt by the (civil law) debtor of the investment income (KapG / Bank) leads to a taxable advantage (Section 20 (2) No. 1 EStG), which is taken into account by correspondingly increased tax rates. For example, the KapESt for dividends with a net agreement (KapG assumes the withholding tax as the tax debtor) increased from 20% to 25% (Section 43a (1) No. 1 EStG) up to VZ 2008.

With regard to the question of when the KapESt arises, Section 11 EStG (inflow) is waived by Section 44 (2) EStG in the case of dividends. If the dividend resolution does not specify the day of payment, the day after the resolution is passed is deemed to be the “inflow date”; However, this only applies to the KapESt and not to Section 20 of the EStG, as the BFH has ruled several times (most recently BFH judgment of November 17, 1998, BStBl II 1999, 223; there on the "controlling GmbH shareholder").

It also corresponds to the character of an advance payment on the ESt of the shareholder or paper holder that the withholding and transfer of KapESt according to § 45a EStG approved must be, they should be credited according to § 36 Abs. 2 EStG. However, if the shareholder does not incur any income tax liability as a result of the assessment, this will be reimbursed in accordance with Section 44b of the Income Tax Act. The KapESt deduction is waived in advance due to an NV certificate or an exemption order according to § 44a EStG. These regulations only apply to tax residents.

In several letters (BMF of November 5, 2002, BStBl I 2002, 1338 and 1346, amended by the BMF of December 13, 2005, BStBl I 2005, 1051 and BMF of January 12, 2006, BStBl I 2006, 101), the BMF adopted the principles for Payment, waiver and reimbursement of KapESt in accordance with Sections 44–44b EStG combined, Section 44c EStG has been omitted. The official forms for the exemption order (BMF of May 16, 2001, BStBl I 2001, 346; see also OFD Frankfurt of 9.1.2006, S 2400 A - 33 - St II 1.04, most recently BMF of 2.7.2008 , BStBl I 2008, 687) as well as for the tax certificate according to § 45a EStG (BMF of February 20, 2001, BStBl I 2001, 235, most recently BMF of November 24, 2008, BStBl I 2008, 973).

However, these letters are no longer applicable if the BMF letter on flat-rate withholding tax (BMF of January 18, 2016, BStBl I 2016, 85) applies.

2.4. Dividends for non-resident taxpayers

In the case of persons with limited tax liability (Section 1 (4) EStG), the KapESt (→ capital gains tax) generally has a so-called Compensation effect (Section 50 (5) sentence 1 EStG) for dividends according to Section 49 (1) no. 5 EStG, as no assessment is carried out solely for capital income from persons with limited tax liability.

The Exceptions of this are regulated in Section 50 (5) sentence 2 EStG: The compensation effect does not apply if the dividends are received from cross-border commuters or from a domestic → permanent establishment. The same legal consequence applies to the extended restricted tax liability according to § 2 AStG.

For the KapESt deduction In the case of "non-resident taxpayers", the regulation of the partial income procedure must also be observed: Since, in accordance with Section 3 No. 40d EStG, only the 60% dividend is taxable even for those with limited tax liability, the withheld KapESt according to Section 50 (5) sentence 1 EStG has double effect definitely. It must be taken into account that the → assessment basis for the (25%) KapESt according to §§ 43 Paragraph 1 No. 1 or No. 1a, 43a Paragraph 1 No. 1 EStG is the 100% gross dividend.

There is also a liability procedure at KapESt. It is modeled in Section 44 (5) EStG (or in Section 45a (7) EStG) of the wage tax liability of Section 42d EStG.

With its judgment of October 20, 2011 in case C-284/09 (Commission against the Federal Republic of Germany), the ECJ ruled that the compensatory effect of the tax deduction according to § 32 KStG for dividend payments to certain non-resident EU / EEA corporations violates Union law . The legislature reacted to the case law of the European Court of Justice with the amendment of Section 8b (4) KStG (law for the implementation of the European Court of Justice ruling of October 20, 2011) and now introduced a 100% tax liability for dividends from free float holdings also for corporations as shareholders.

Section 8b (4) KStG in the version of the law for the implementation of the ECJ ruling of October 20, 2011 in the case C-284/09 of March 21, 2013 as well as Section 9 no.2a GewStG in the version of UntStRefG 2008 of August 14, 2007 are amended with Art. 3 para. 1 GG, BFH IR 29/17 of December 18, 2019 (LEXinform 0951368).

3. The taxation principles in the transitional period

3.1. The transition period - principles

The transition period from the imputed to the half-income method begins with the reclassification of the usable equity capital (vEK) in accordance with § 36 KStG. This reclassification has a corporation that is subject to classification (usually KapG) with the same calendar → financial year on 31.12.2000to be carried out later if the business year is different. It lasts until 31.12.2019. The aim of this reclassification is to reduce the partial amounts of the vEK to a minimum without losing the KapG and the tax authorities' tax claims.

The KapG has deferred corporation tax reimbursement claims insofar as it shows a corporation tax credit documented in EK 40 after the reclassification (→ corporation tax reduction); the tax authorities are entitled to subsequent tax debit insofar as there is a deferred tax charge in partial amounts of EK 02. The amounts of the vEK, which in the last breakdown calculation in EK 04 (Services of the partners) were included in the tax deposit account (→ Tax deposit account; Section 27 KStG). The positive final amount of the partial amount is also the opening balance of the new tax deposit account (Section 39 (1) KStG). Other partial amounts of the equity capital documented in the breakdown calculation are no longer determined separately, but are included in the so-called neutral assets.

If a KapG according to the reclassification measures within the meaning of Section 36 KStG, e.g. an EK 40 in the amount of 600, this means that these reserves are already burdened with 40% corporation tax and that this burden had to be reduced to 30% in the case of distribution at company level according to the old law. According to the new law, profits - regardless of a → profit distribution - are only charged at 15% (and half of the dividends are recorded by the shareholder). A partial amount of EK 40 will in future neither be determined separately nor carried forward as a separate partial amount; instead, a corporate income tax credit is determined (Section 37 (1) KStG). The corporation credit corresponds to 1/6 of the last stock EK 40; this corresponds to the reduction of the corporation tax burden in the event of a distribution from 40% to 30%.

Conversely, if the KapG also assigns a partial amount of the EK 02 In the event of a distribution, this partial amount must be subsequently debited in order to achieve a system-compliant corporate tax pre-debit. This results in a latent corporation tax charge for this partial amount.

During the transition period, there is a juxtaposition of »remnants« of the old → equity breakdown (corporation tax credit, partial amounts of EK 02, cf. §§ 37, 38 KStG) and the new system. There is an 18-year mixed system with results that are contrary to the system. The following additional features that deviate from the old regulation must be observed during the transition period:

  • The KSt relief if the corporation credit is realized, it does not work back to the year for which it is distributed. The discharge concerns that Distribution year (Section 37 (2) sentence 2 KStG). In this respect, there is a deviation from Section 27 (3) KStG old version.
  • The corporation credit is only available for oGA, but not VGA implemented (Section 37 (2) sentence 1 KStG). However, this does not apply to the (distribution) period from April 11, 2003 to December 31, 2005, in which no corporation credit can be realized (moratorium). This is based on the idea that old reserves are only used with oGA, while with vGA "new income" is paid out to the shareholders. Systematically, on the one hand, corporation credit for advance profit distributions should not be realized and, on the other hand, a corporation tax increase for vGA (§ 38 KStG) is also out of the question. However, neither is the case, which inevitably results in system breaks.

    Through the law on tax measures accompanying the introduction of the European company and the amendment of other tax regulations (SEStEG; Federal Law Gazette I 2006, 2782), this system of → corporation tax reduction was replaced by a proportional Payout independent of distribution of the corporation tax credit still existing on December 31, 2006 during a ten-year payout period (2008-2017).

3.2. Impact at the shareholder level

The use of certain partial amounts for dividends only has effects at company level in the transition period. After the crediting procedure has been discontinued, dividends are to be recorded by the shareholder regardless of the source of finance for the profit distribution. For natural persons as shareholders, the partial income procedure or the → withholding tax applies, for KapG as shareholders the tax exemption in accordance with Section 8b (1) KStG (since 2004 in conjunction with Section 8b (5) KStG).

With a stake of

However, as far as profit distributions from the tax deposit account are financed, special features apply, as the shareholders' taxed contributions are returned to this extent.

In the case of a natural person as a shareholder, a distinction must be made as to whether it is taxable income from capital assets in accordance with Section 20 (1) No. 1 EStG or not (see Section 20 (1) No. 1 sentence 3 EStG).

In the context of Section 17 of the Income Tax Act (EStG), a transaction equivalent to a sale is faked if the repayments from the tax deposit account exceed the acquisition costs (Section 17 (4) of the Income Tax Act).

4. Related Lexicon Articles

→ Final withholding tax

→ distributions

→ Controlling partner

→ Business split-up

→ Dividend exemption for corporations as recipients

→ Breakdown of equity

→ Distribution of profits

→ Half-income procedure

→ Capital gains tax

→ Hidden profit distribution

 

Note to editors:© Schäffer-Poeschel Verlag for Economics, Taxes and Law, Stuttgart.