All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Germany: Repayment of nominal capital



Alexander Linn

Thorsten Braun

For multinationals with profit-making German subsidiaries, withholding tax on dividends can be an issue when repatriating profits from Germany, especially considering Germany's complex anti-treaty shopping rules and this often leads to an investor not receiving full treaty or EU directive benefits. Thus, opportunities to transfer cash from German subsidiaries by other means than dividends have become a consideration. For tax purposes, a distribution would usually be treated as a dividend (triggering withholding tax) and not as a repayment of capital (sourced from the tax equity account) as long as a company has distributable profits (E&P). Broadly speaking, once a company has had a balance sheet profit in one year, it can no longer directly access the tax equity account and would be deemed to pay dividends until the distributable profits have been consumed.

In a recent decision (IR 31/13), Germany's Federal Tax Court confirmed that a repayment of nominal capital would be treated as a repayment of capital for tax purposes, regardless of the amount of distributable profits. The decision confirms that a repayment of nominal capital allows taxpayers to directly access the tax equity account, meaning that the distribution will be treated as a repayment of capital for tax purposes. In that respect, the court even confirmed that a reduction and repayment of nominal capital do not necessarily have to take place within the same year and do not necessarily have to be included in the same shareholder resolution; this is legally required only for German stock corporations (AG), but not for German limited companies (GmbH). If a reduction and repayment of nominal capital are sufficiently closely linked and it is possible to demonstrate that the distribution was sourced from the reduction of nominal capital (and not from other capital or profit reserves), it would not be considered a dividend for tax purposes.

Alexander Linn ( and Thorsten Braun (


Tel: +49 89 29036 8558 and +49 69 75695 6444


more across site & bottom lb ros

More from across our site

Companies in the UAE can prepare for a corporate tax regime in 2023, while the Trump Organization was found guilty of 17 counts of tax fraud.
The companies have criticised proposals for the gig economy, while the UK and EU VAT gaps have fallen in percentage terms, and ITR speaks to a European Commission adviser about its VAT reforms.
Corporations risk creating administrative obstacles if the pillar two rule is implemented too soon, sources say.
Important dates for the Women in Business Law Awards 2023
The Italian government published plans to levy capital gains tax on cryptocurrency transactions, while Brazil and the UK signed a new tax treaty.
Multinational companies fear the scrutiny of aggressive tax audits may be overstepping the mark on transfer pricing methodology.
Standardisation and outsourcing are two possible solutions amid increasing regulations and scrutiny on transfer pricing, say sources.
Inaugural awards announces winners
The UN’s decision to seek a leadership role in global tax policy could be a crucial turning point but won’t be the end of the OECD, say tax experts.
The UN may be set to assume a global role in tax policy that would rival the OECD, while automakers lobby the US to change its tax rules on Chinese materials.