educational

Tax Watch: Germany

Congress has ratified a new protocol to the U.S.-German income tax treaty that reduces the rate of withholding with respect to dividends in certain instances. This favorable adjustment reduces the parent/subsidiary withholding tax rate on dividends from five percent to zero percent.

Congress allowed the reduction to take effect retroactively to 2007. As a result, U.S. and German companies that received inter-company dividends during 2007, on which the five percent rate of withholding was applied, may be eligible for a refund of the taxes withheld.

The U.S.-German protocol entered into force Dec. 28, 2007, and provides for a zero percent withholding tax in certain circumstances. To be eligible for the zero percent rate, the company receiving the dividend must own at least 80 percent of the voting power of the payor corporation, and must have owned such corporation for at least 12 months from the date of the receipt of dividend.

In addition, the company receiving the dividend must qualify under the anti-treaty shopping provisions of the treaty (i.e., the Limitations of Benefits provisions under Article 28), summarized as:

  • The public trading test;
  • The ownership and base erosion test and active trade or business test;
  • The derivative benefits test; or
  • Receive a favorable determination from the competent authority with respect to the zero-rate provision.

As qualification under the Limitation of Benefits provisions is specific to facts and circumstances, it is advisable to undertake a thorough analysis in determining whether the zero percent rate of withholding may apply.

If the zero percent rate does in fact apply and taxes have been over-withheld in 2007, there are various mechanisms (whether in the U.S. or Germany) to apply for a refund of the over-withheld tax.

For example, a U.S. subsidiary that over-withheld and made a deposit of the tax may be eligible to adjust the over-withheld amount either under a reimbursement procedure or under a set-off procedure. Alternatively, a refund of the amount over-withheld can be claimed by the German parent by filing a U.S. tax return.

If amounts were over-withheld in Germany, the U.S. parent must file an "Application for Refund of German Withholding Tax" with the German tax authorities (Bundesamt für Finanzen), with supporting documentation.

If a business can benefit from the new U.S.-Germany treaty dividend withholding rate, both retroactively to 2007 and prospectively, we recommend analyzing whether benefits from the reduction can be captured (in the form of a refund) or planning future intercompany distributions accordingly.

Related:  

Copyright © 2025 Adnet Media. All Rights Reserved. XBIZ is a trademark of Adnet Media.
Reproduction in whole or in part in any form or medium without express written permission is prohibited.

More Articles

opinion

The SCREEN Test: How to Prepare for Federal Age Verification

For those who are counting, there are now 20 enacted state laws in the United States requiring age verification for viewing online adult content, plus numerous proposed laws in the works. This ongoing barrage has been exhausting for many in the adult industry — and it may be about to escalate in the form of a potential new AV law, this time at the federal level.

Corey D. Silverstein ·
opinion

How to Master Team Dynamics for Business Success

Having the right team in place is everything. Whether getting a startup off the ground and thriving, or safeguarding an established company, the right — or wrong — people can mean the difference between a successful venture and a failed dream.

Juicy Jay ·
opinion

Eight Steps to Fast-Track AI Site Approval for Processing

Artificial intelligence is a hot topic these days. AI technology is speeding up the way we do business across all industries and offers numerous benefits, from automating processes to increasing efficiency and scalability.

Cathy Beardsley ·
opinion

How to Secure High-Risk Transactions With Network Tokenization

Ensuring the security of data as it moves through digital channels is the foundation of safe transactions, and crucial for your success. If your business can’t secure transactions, you’re exposed to myriad processing traumas.

Jonathan Corona ·
profile

Lea Lexis On Challenging the Porn Status Quo

Lea Lexis doesn’t just aim to make movies — she wants to craft experiences. Bending the rules of what’s possible in moviemaking with the precision of a true auteur, the performer-turned-Brazzers producer has helped shape some of the industry’s most striking and boundary-pushing productions.

Jackie Backman ·
profile

WIA Profile: Reba Rocket

As chief operating officer and chief marketing officer of Takedown Piracy, long at the forefront of intellectual property protection in adult entertainment, Rocket is dedicated to safeguarding the livelihoods of content creators and producers while fostering a more ethical and sustainable industry.

Women In Adult ·
opinion

Protecting Content Ownership Rights When Using AI

In today’s digital age, content producers have more tools at their disposal than ever before. Among these tools, artificial intelligence (AI) content generation has emerged as a game changer, enabling creators to produce high-quality content quickly and efficiently.

Corey D. Silverstein ·
opinion

How Payment Orchestration Can Help Your Business

An emerging payment solution is making waves in the merchant world: the payment orchestration platform (POP). It’s quickly gaining traction as a powerful tool for managing online payments — but questions abound.

Cathy Beardsley ·
opinion

Fine-Tuning Refund and Cancellation Policies

For adult websites, managing refunds and cancellations isn’t just about customer service. It’s a crucial factor in maintaining compliance with the regulations of payment processors and payment networks such as Visa and Mastercard.

Jonathan Corona ·
profile

WIA Profile: Laurel Bencomo

Born in Cambridge, England but raised in Spain, Laurel Bencomo initially chose to study business at the University of Barcelona simply because it felt familiar — both of her parents are entrepreneurs. She went on to earn a master’s degree in sales and marketing management at the EADA Business School, while working in events for a group of restaurants in Barcelona.

Women In Adult ·
Show More