We have discussed Germany before – Read Here. and Here.
The cliff notes version of this? Any payments from Germany to the United States — whether dividends, interest, or royalties should be carefully reviewed.
Why?
German tax authorities have started to deny withholding tax relief and refunds in U.S. inbound structures involving German subsidiaries.
Why?
The US hold co is treated as disregarded entities for U.S. tax purposes.
So? Previously tax-neutral dividend, interest, or royalty payments may now be subject to withholding of up to 26.375%.
Background
Investments through German subsidiaries are subject to a combined corporate tax burden of approximately 30 percent, depending on the municipality. In addition, profit repatriation in the form of dividends, as well as interest and royalty payments, is generally subject to a withholding tax of 15.825 percent (for royalties) or 26.375 percent (for dividends and interest).
This tax is collected at the German subsidiary level on behalf of the U.S. parent.
Given that the United States accounts for a large share of foreign direct investment in Germany and is the most important non-EU investor, the question of whether a U.S. parent is entitled to relief from or a refund of German withholding taxes under the Germany-U.S. tax treaty is important.
