Opinion of the Advocate General — ECLI:EU:C:2022:48
Date: 2022-01-20
Language of the case: German
Subject matter: Taxation;Free movement of capital;Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: Germany

Summary C-572/20 – 1 
Case C-572/20 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
3 November 2020 
Referring court: 
Finanzgericht Köln (Germany) 
Date of the decision to refer: 
20 May 2020 
Applicant: 
ACC Silicones Ltd. 
Defendant: 
Bundeszentralamt für Steuern 
  
Subject matter of the main proceedings 
Tax law – Tax on income from capital – Application for the reimbursement of tax 
on income from capital made by a foreign company to which dividends from its 
free-float holdings in domestic companies are distributed 
Subject matter and legal basis of the request for a preliminary ruling 
Interpretation of EU law; Article 267 TFEU 
Questions referred 
I. Does Article 63 TFEU (ex Article 56 EC) preclude a national tax provision, 
such as that at issue in the main proceedings, which, for the purposes of the 
reimbursement of tax on income from capital, requires a company resident abroad 
which receives dividends from equity holdings and does not meet the minimum 
equity holding threshold laid down in Article 3(1)(a) of Directive 90/435 on the 
common system of taxation applicable in the case of parent companies and 
EN 
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subsidiaries of different Member States (as amended by Directive 2003/123) to 
prove, by means of a certificate from the foreign tax administration, not only that 
neither that company nor a shareholder with a direct or indirect equity holding in 
that company can offset the tax on income from capital or deduct it as an 
operating cost or as work-related outgoings, but also that no offset, deduction or 
carry-forward has actually taken place either, in the case where such proof is not 
required, for the purposes of the reimbursement of tax on income from capital, 
from a company with the same level of equity holding which is resident in 
national territory? 
II. In the event that the answer to the first question is in the negative: 
Do the principles of proportionality and effectiveness preclude the requirement of 
a certificate as referred to in the first question in the case where it is effectively 
impossible for a company in receipt of dividends from so-called ‘free-float’ shares 
which is resident abroad to provide such a certificate? 
Provisions of EU law cited 
The Treaty on the Functioning of the European Union (TFEU), specifically 
Articles 49, 54, 63, 65 and 267 thereof. 
Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation 
applicable in the case of parent companies and subsidiaries of different Member 
States (as amended by Directive 2003/123, ‘Directive 90/435’), specifically 
Article 3 thereof. 
Council Directive 2011/96/EU of 30 November 2011 on the common system of 
taxation applicable in the case of parent companies and subsidiaries of different 
Member States (‘the parent-subsidiary directive’). 
Provisions of national law cited 
The Grundgesetz für die Bundesrepublik Deutschland (Basic Law for the Federal 
Republic of Germany, ‘the GG’), specifically Article 23 thereof. 
The Körperschaftsteuergesetz (Law on corporation tax, ‘the KStG’), specifically 
Paragraphs 2, 8b, 31, 32 and 34 thereof (as amended by the Law implementing the 
judgment of the Court of Justice of 20 October 2011 in Case C-284/09, ‘the 
EuGHUmsG’). 
The Einkommensteuergesetz (Law on income tax, ‘the EStG’), specifically 
Paragraphs 20, 36, 43, 43b, 44a, 45a, 49 and 50d thereof. 
The Abgabenordnung (German Tax Code, ‘the AO’), specifically Paragraphs 10, 
11, 90 and 155 thereof. 
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The Germany-UK Double Taxation Convention (‘the DBA-GB’), specifically 
Article 4(1) thereof. 
Brief summary of the facts and procedure 
The parties are in dispute as to whether the applicant is entitled to a 
reimbursement of tax on income from capital, under Paragraph 32(5) of the KStG, 
in respect of dividends from free-float shares in the years at issue, 2006 to 2008. 
The applicant is a company limited by shares, resident in the United Kingdom, 
which, in the years at issue, 2006, 2007 and 2008, had a 5.26% equity holding in 
the nominal capital of Ambratec GmbH, Mainz. The applicant is wholly owned by 
The Amber Chemical Co. Ltd, a publicly listed company. In the years at issue, the 
applicant received distributed profits from Ambratec GmbH. Ambratec GmbH 
withheld and paid tax on income from capital, at a rate of 20%, plus the German 
solidarity surcharge, at a rate of 5.5%, on those distributed profits. 
By application of 29 December 2009, received by the defendant on 31 December 
2009, the applicant requested reimbursement of the tax on income from capital 
and the solidarity surcharge relating to the years at issue, 2006 to 2008, which had 
been withheld and paid. In each case, the applicant based one part of the 
application on Paragraph 50d(1) of the EStG in conjunction with Article 6(1) of 
the DBA-GB, since the DBA-GB limits the withholding tax chargeable to 15% [of 
the dividends paid]. With respect to the reimbursement of the remaining tax on 
income from capital, it based the other part of the application on the fundamental 
freedoms of the EC Treaty and the TFEU. By decision of 7 October 2010, the 
defendant adjudicated on the applications made on the basis of Paragraph 50d(1) 
of the EStG in conjunction with Article 6(1) of the DBA-GB and, in so doing, 
granted a reimbursement of the tax on income from capital plus the solidarity 
surcharge, as requested. Moreover, by decisions of 8 June 2015, the defendant, 
with reference to the application of 31 December 2009, refused to grant an 
exemption and reimbursement, under Paragraph 32(5) of the KStG, in respect of 
the German withholding taxes levied on income from capital in the years at issue. 
The applicant raised an objection to those decisions within the prescribed time 
limit. By decisions of 22 January 2016, those objections were dismissed as 
unfounded. The applicant thereafter brought a judicial action within the prescribed 
time limit. 
Submissions of the applicant 
In support of its action, the applicant claims that proof for the purposes of 
point 1(b) and (c) of the first sentence of Paragraph 32(5) of the KStG has been 
provided. The purpose of Paragraph 32(5) of the KStG is to avoid, by means of a 
right to reimbursement exercisable by a foreign creditor of income from capital in 
the cases specified by the Court of Justice, the definitive taxation of foreign 
limited companies (parent companies) which have received dividends from their 
domestic (German) subsidiaries. The applicant, which is resident in England, 
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submits that board meetings in the years at issue took place in England. Moreover, 
its directors are predominantly resident in England. It has submitted a certificate 
from the United Kingdom tax authorities dated 12 August 2014. It claims that it 
has also proved that it cannot offset, deduct or carry forward German tax on 
income from capital and that that tax has not actually been offset, deducted or 
carried forward either. 
In so far as the defendant requires the submission of a certificate from the State of 
residence to show that neither it, the applicant, nor shareholders with a direct or 
indirect equity holding in it can offset the withheld tax on income from capital or 
take it into account for tax-reduction purposes, it provided that proof in the form 
of tax calculations. It is clear from these that, at the level of The Amber Chemical 
Co. Ltd., the parent company, no German withholding taxes were offset (not even 
in respect of that part of the dividend that was received directly), and that, in that 
regard, all of the information on the dividends received at the level of the 
subsidiary – that is to say, the applicant – and on the related German withholding 
taxes has been lost. The submission of a certificate from HMRC cannot be 
required at that level. The requirement to furnish such proof must be regarded as 
disproportionate and is not covered either by Paragraph 32(5) of the KStG or by 
Paragraph 90(1) and (2) of the AO, since it goes beyond what is necessary in order 
to examine, and issue a positive decision on, a claim to reimbursement under 
Paragraph 32(5) of the KStG. 
The fact that it is not possible for shareholders with a direct or indirect equity 
holding in the applicant to offset tax requires no further proof, since no 
corresponding income is attributed to those persons. The requirement to submit a 
model certificate in respect of the direct and indirect shareholders of an indirectly 
listed company would quite clearly go beyond the bounds of all proportionality. In 
that regard, the provision of proof is likely to be precluded not least by the fact 
that those with shareholdings in the parent company during the period of 
distribution are no longer identifiable. In the course of the judicial proceedings, 
the applicant submitted global non-offset certificates from HMRC dated 24 May 
2016. It is clear from these that offsetting is generally not possible in the case of 
only indirect shareholders (that is to say extending back from the applicant’s 
direct shareholders). The applicant submits that the requirement to submit such a 
global certificate infringes EU and constitutional law. 
Submissions of the defendant 
The defendant submits that there is no right to reimbursement under 
Paragraph 32(5) of the KStG, since the applicant has not proved that the 
conditions of reimbursement are met. The applicant has not provided the proof 
required by law under point 1(b) and (c) of the first sentence of Paragraph 32(5) of 
the KStG in respect of its centre of effective management. Moreover, point 5 of 
the second sentence of Paragraph 32(5) of the KStG lays down the condition that 
neither the applicant nor a shareholder with a direct or indirect equity holding in 
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the applicant must have been able to offset, deduct or carry forward the withheld 
tax. That provision is expanded upon by the obligation to provide proof laid down 
in the fifth sentence of Paragraph 32(5) of the KStG. This provides that proof 
must be furnished to show not only that there is in principle no possibility of an 
advantage, but also that no advantage has actually materialised either. Implicit in 
the requirement of proof is the further obligation to provide detailed information 
on the precise group of persons forming the direct and indirect shareholders, 
irrespective of their legal form. One way of discharging that obligation is to 
submit an organisational chart detailing the entire chain of equity participation 
down to the last indirect person. The applicant did not meet that condition either. 
The applicant has not proved that it is not possible for one of its direct or indirect 
shareholders to take the contested deduction at source into account for tax 
purposes in the country in which the shareholder concerned is resident (point 5 of 
the second sentence of Paragraph 32(5) in conjunction with the fifth sentence of 
Paragraph 32(5) of the KStG). The requirement of proof contained in the third 
sentence of Paragraph 32(5) of the KStG does not lead to unjustified 
discrimination. 
Any restriction on the exercise of the fundamental freedoms guaranteed by the EU 
Treaty is justified where it serves the need to maintain the cohesion of a tax 
system. This presupposes the existence of a direct link between the tax advantage 
concerned and the offsetting of that advantage by a particular tax levy (judgments 
of 13 March 2007, C-524/04, Test Claimants, paragraph 68, and of 8 November 
2007, C-379/05, Amurta, paragraph 46). Thus, the Federal Republic of Germany 
is not required to provide any tax relief where an exemption from the deduction of 
tax on income from capital [at source] in respect of dividends which have been 
distributed by limited companies resident in Germany has in fact already been 
achieved, or could have been achieved, through relief afforded to a foreign direct 
or indirect recipient of the dividends in a State of residence. It is for this reason 
that tax authorities of a Member State of the European Union are entitled to 
require the taxpayer to provide such proof as is necessary in order to determine 
whether the conditions for a tax advantage provided for in the legislation at issue, 
including the reality and nature of tax deductions made in other Member States, 
have been met (judgments of 30 June 2011, C-262/09, Meilicke II, and of 
10 February 2011, C-436/08, Haribo). 
Assessment of the dispute under national law 
In the case of distributed profits, a shareholder resident abroad receives income 
from capital, within the meaning of Paragraph 20(1), point 1, of the EStG, which 
is subject to a limited liability to tax in accordance with Paragraph 49(1)(5)(a) 
EStG. In that connection, income tax is levied, in accordance with the first 
sentence of point 1 of Paragraph 43(1) of the EStG (in conjunction, in the case of 
a limited company, with the first sentence of Paragraph 31(1) of the KStG), by 
means of a deduction [at source] from the income from capital (tax on income 
from capital). Tax on income from capital which has been withheld and paid may 
be reimbursed. The conditions governing reimbursement differ depending on 
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whether the free-float equity participation, that is to say an equity participation of 
less than 15% or 10%, is held by a corporation resident in national territory or 
abroad. If the free-float equity participation is held by a corporation resident in 
national territory, dividends distributed to that corporation by a domestic company 
in the years at issue and until the entry into force of the Law of 21 March 2013 
implementing the judgment of the Court of Justice of 20 October 2011 in Case 
C-284/09 are tax-free, in accordance with Paragraph 8b(1) of the KStG. In 
accordance with Paragraph 31(1) of the KStG in conjunction with 
Paragraph 36(2)(2) of the EStG, tax on income from capital which has been 
withheld in the period at issue is offset against the tax liability of the domestic 
corporation and may also be reimbursed. The offsetting (and reimbursement, if 
any,) of the tax on income from capital presupposes that that tax has been 
withheld and paid. This must be proved by the submission of a certificate, in 
accordance with Paragraph 45a(2) or (3) of the EStG. In the case of dividends 
distributed to corporations resident abroad which hold a free-float equity 
participation, the law provides for the possibility of reimbursement of tax on 
income from capital in Paragraph 32(5) of the KStG. However, the conditions 
[governing such reimbursement] are different from those that apply to the 
offsetting or reimbursement of tax on income from capital in the case of domestic 
companies. 
aa. Legislative history of Paragraph 32(5) of the KStG 
Paragraph 32(5) of the KStG was introduced by the legislature following the 
judgment of the Court of Justice of 20 October 2011, C-284/09. In that judgment, 
the Court ruled that the discharging effect of the withholding tax levied, in 
accordance with Paragraph 32(1) of the KStG, on dividends to foreign 
corporations that do not reach the minimum holding threshold laid down in the 
parent-subsidiary directive infringes the free movement of capital provided for in 
the TFEU and the EEA Agreement. 
bb. Prescriptive content of Paragraph 32(5) of the KStG 
Paragraph 32(5) of the KStG lays down a number of conditions governing the 
reimbursement of tax on income from capital, including certain obligations to 
provide proof and certificates. It reads: 
(5) Where the corporation tax owed by the creditor on income from capital 
within the meaning of Paragraph 20(1)(1) of the EStG has been definitively 
disposed of in accordance with subparagraph 1 [hereof], the tax on income 
from capital which has been withheld and paid shall, on application, be 
reimbursed to the creditor of the income from capital in accordance with 
Paragraph 36(2)(2) of the EStG, where 
1. the creditor of the income from capital is a company subject to limited 
tax liability as provided for in Paragraph 2(1), which 
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a) is also a company within the meaning of Article 54 of the Treaty 
on the Functioning of the European Union or Article 34 of the 
Agreement on the European Economic Area, 
b) has its registered office and centre of effective management 
within the territory of a Member State of the European Union or a 
State to which the Agreement on the European Economic Area is 
applicable, 
c) is subject, in the State of its centre of effective management, to 
non-optional, unlimited tax liability comparable to that referred to in 
Paragraph 1, and is not exempt therefrom, 
2. the creditor has a direct holding in the share capital of the debtor of the 
income from capital and does not meet the minimum participation 
threshold laid down in Paragraph 43b(2) of the EStG. 
Sentence 1 shall apply only in so far as 
1. reimbursement of the tax on income from capital in question is not 
available under any other provision, 
2. the income from capital would be left out of account in the calculation 
of income, in accordance with Paragraph 8b(1), 
3. the income from capital is not attributed, under provisions in another 
country, to any person who would not be entitled to reimbursement 
pursuant to this subparagraph if he were to receive the income from 
capital directly, 
4. a right to full or partial reimbursement of the tax on income from 
capital would not be excluded if Paragraph 50d(3) of the EStG were 
applied mutatis mutandis, and 
5. the creditor or a shareholder having a direct or indirect equity holding 
in the creditor cannot offset the tax on income from capital or deduct it 
as an operating cost or as work-related outgoings; the possibility of 
carrying forward a set-off shall be treated as a set-off. 
The creditor of the income from capital shall provide proof of compliance with the 
conditions of reimbursement. In particular, he shall prove, by way of a certificate 
from the tax authorities of his country of residence, that he is regarded as being 
resident for tax purposes in that country, is subject to unlimited corporation tax 
liability there, is not exempt from corporation tax and is the actual recipient of the 
income from capital. The certificate from the foreign tax administration shall 
show that the German tax on income from capital cannot be offset, deducted or 
carried forward and that no set-off, deduction or carry-forward has actually taken 
place either. The tax on income from capital within the meaning of the first 
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sentence shall be reimbursed in relation to all income from capital received in a 
calendar year on the basis of an exemption notice as provided for in the third 
sentence of Paragraph 155(1) of the AO. 
Summary of the grounds for reference 
A reference to the Court of Justice of the European Union is required in 
accordance with Article 267 TFEU because there is some uncertainty as to how 
the free movement of capital provided for in Article 63 TFEU (ex Article 56 EC) 
is to be construed. The question crucial to the outcome of the proceedings is 
whether the conditions laid down by the German legislature in Paragraph 32(5) of 
the KStG as governing the reimbursement of tax on income from capital in the 
form of dividends from free-float shares – that is to say dividends from equity 
holdings of less than 15% (in the case of distributions up to 31 December 2008) or 
10% (in the case of distributions after 31 December 2008) – are compatible with 
EU law and, therefore, applicable. The questions referred for a preliminary ruling 
are material to the judgment to be given. With the exception of the condition 
forming the subject of the uncertainty expressed in the question referred for a 
preliminary ruling, all the conditions of reimbursement laid down in 
Paragraph 32(5) of the KStG are met. Paragraph 32(5) of the KStG is applicable 
in the years at issue pursuant to Paragraph 34(13b) of the KStG. The dividends in 
respect of which the disputed tax on income from capital was withheld and paid 
objectively constitute income from capital within the meaning of 
Paragraph 20(1)(1) of the EStG (the first sentence of Paragraph 32(5) of the 
KStG). 
The right to reimbursement requires that the creditor should be a company subject 
to limited tax liability under Paragraph 2(1) of the KStG that meets the definition 
of a company or firm given in Article 54 TFEU (Paragraph 32(5), point 1(a), of 
the KStG), has its registered office (Paragraph 10 of the AO) and centre of 
effective management (Paragraph 11 of the AO) within the territory of an EU 
Member State or an EEA State (point 1(b) of the first sentence of Paragraph 32(5) 
of the KStG) and is subject, in the State of its centre of effective management, to 
non-optional, unlimited tax liability comparable to that referred to in Paragraph 1 
of the KStG, without being exempt therefrom (point 1(c) of the first sentence of 
Paragraph 32(5) of the KStG). Those conditions are satisfied. The applicant, as a 
recipient of dividends distributed by a company resident in Germany, is a 
company subject to limited tax liability in accordance with Paragraph 2(1) of the 
KStG. It is also a company or firm within the meaning of Article 54 TFEU 
(Paragraph 32(5), point 1(a), of the KStG). The condition laid down in point 1(b) 
of the first sentence of Paragraph 32(5) of the KStG is also satisfied. Both the 
applicant’s registered office within the meaning of Paragraph 10 of the AO and its 
centre of effective management within the meaning of Paragraph 11 of the AO are 
located in the United Kingdom. 
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With regard, in particular, to its centre of effective management, the applicant has 
argued to the satisfaction of this Chamber, and, through the submission of 
appropriate documentation, substantiated, that its directors are predominantly 
resident in the United Kingdom and that its board meetings took place at the 
undertaking’s registered office in the United Kingdom. In that connection, the 
applicant submitted an extract from the United Kingdom commercial register 
containing a list of its company officers, who were predominantly resident in the 
United Kingdom. The applicant has also submitted the minutes of two 
documented director meetings held at the undertaking’s registered office on 
31 January 2007. In addition, the applicant has submitted the Directors’ Report 
and Financial Statements as of 31 March 2009, which expressly refers to ‘UK-
based directors’ as key management personnel. 
The foregoing notwithstanding, this Chamber is satisfied that the requirement that 
the registered office (Paragraph 10 of the AO) and the centre of effective 
management (Paragraph 11 of the AO) must be located within the territory of an 
EU Member State or an EEA State (point 1(b) of the first sentence of 
Paragraph 32(5) of the KStG) infringes EU primary law and is therefore 
inapplicable in any event. This is because the amendment of the rules was 
triggered by an infringement of the free movement of capital, the scope of which 
extends in principle to third countries. So it was that the Court of Justice based its 
judgment of 20 October 2011 (C-284/09), which was the reason for the 
introduction of Paragraph 32(5) of the KStG, on the free movement of capital 
(Article 63 TFEU) and, in particular, not on the freedom of establishment 
(Article 49 TFEU). In that judgment, the Court stated that, by subjecting 
dividends distributed to companies having their registered office in another 
Member State to higher taxation, economically, than dividends distributed to 
companies with their registered office in its territory, in cases where the minimum 
threshold for equity participation by a parent company in the capital of its 
subsidiary, laid down in Article 3(1)(a) of Directive 90/435, is not reached, a 
Member State fails to fulfil its obligations under Article 56(1) EC, that is to say its 
obligation to ensure the free movement of capital. The fact that the foregoing is to 
be regarded as an infringement of the free movement of capital means that even 
parent companies having their registered office in third countries that do not reach 
the minimum equity holding threshold can invoke an infringement of EU primary 
law. This is because the free movement of capital is the only fundamental freedom 
that is applicable to third countries too (see the judgment of 18 December 2007, 
C-101/05). Article 63(1) TFEU (ex Article 56 EC) thus provides that all 
restrictions on the movement of capital between Member States and between 
Member States and third countries are to be prohibited. 
The foregoing is confirmed by the judgment of the Court of Justice of 
13 November 2019 (C-641/17, College Pension Plan of British Columbia v 
Finanzamt München). According to that judgment, the taxation of free-float 
dividends distributed to foreign pension funds infringes the free movement of 
capital. This is because resident pension funds are entitled to receive dividends 
free of tax, as they are able, in the context of the tax assessment procedure, to 
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offset any withheld tax on income from capital against corporation tax or to obtain 
a refund of almost all of the former tax. Conversely, non‑ resident pension 
funds – in the circumstances of that case, a pension fund with a registered office in 
Canada, that is to say a third country – cannot effect such set-offs or obtain such 
refunds, since, for such pension funds, the corporation tax paid by way of 
withholding tax has a discharging effect, in accordance with Paragraph 32(1)(2) of 
the KStG, and constitutes a definitive tax burden in relation to them. The Court of 
Justice regarded this as constituting an infringement of the free movement of 
capital. Consequently, that judgment too indicates that, by virtue of the free 
movement of capital, even undertakings having their registered office in third 
countries must not be placed in a worse position in relation to the receipt of 
dividends from free-float shares than undertakings having their registered office in 
national territory or in the Community. 
Since the applicant, with a holding of 5.26% in the years at issue, does not have a 
controlling interest in Ambratec GmbH, a decision on the relationship between the 
free movement of capital and the freedom of establishment, in particular in 
circumstances involving third countries, is unnecessary in any event. With regard 
to the infringement of the free movement of capital, point 1 of the first sentence of 
Paragraph 32(5) of the KStG must be restricted in such a way that that rule also 
applies to undertakings having their registered office and/or centre of effective 
management in third countries. In accordance with Article 23 of the GG (German 
Basic Law)/Article 267 TFEU, the law of the European Union is part of German 
federal law and its application takes precedence over national law. For that reason, 
the courts are not permitted to apply German provisions if they infringe EU law. 
However, a national provision which infringes EU primary law is not, as a rule, 
inapplicable in toto. After all, the principle that Community law takes precedence 
does not mean that the provision contrary to EU law must in principle be 
disapplied in its entirety. Rather, the requirements of Community law which the 
Court of Justice has formulated as being binding must, in suitable cases, be read 
into the provisions concerned through the ‘reduction of infringing provisions to 
preserve validity’. The development of case-law thus makes it possible to create a 
situation which is in conformity with EU law. Accordingly, point 1 of the first 
sentence of Paragraph 32(5) of the KStG must, in order to remain valid, be 
interpreted as meaning that it also applies to companies having their registered 
office and/or centre of effective management in third countries. So far as concerns 
the case at issue, this means that the rule contained in Paragraph 32(5) of the EStG 
would be relevant even if the applicant’s centre of effective management were not 
in the United Kingdom. For, if the infringing provision is reduced in such a way 
as to preserve its validity, the question of whether its centre of effective 
management is in an EU Member State or an EEA State is immaterial. 
Point 1(c) of the first sentence of Paragraph 32(5) of the KStG is also satisfied. 
The applicant is subject, in the State of its centre of effective management, to non-
optional, unlimited tax liability comparable to that referred to in Paragraph 1 of 
the KStG, and is not exempt therefrom. The applicant’s centre of effective 
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management is in the United Kingdom. The applicant is also subject to unlimited 
tax liability there. Its tax liability is non-optional and it is not exempt therefrom. 
Moreover, the requirement in point 2 of the first sentence of Paragraph 32(5) of 
the KStG is also met. According to this, the foreign parent company must have a 
direct holding in the share capital of the debtor of the income from capital which 
must fall below the minimum equity participation threshold laid down in 
Paragraph 43b(2) of the EStG. The level of equity participation must therefore be 
below 10%. The applicant’s holding in the nominal capital of the German 
undertaking Ambratec GmbH s 5.26% and, thus, less than 10%. The certificate 
from the United Kingdom tax authorities (HM Revenue & Customs) dated 
12 August 2014 meets the evidential requirements laid down in the fourth 
sentence of Paragraph 32(5) of the KStG. 
Point 1 of the second sentence of Paragraph 32(5) of the KStG requires that the 
creditor of the income from capital must not be eligible for reimbursement under 
any other provision. That condition is satisfied. In particular, in the case at issue, 
reimbursement is indeed not available under Paragraph 44a(9) or the second 
sentence of Paragraph 50d(1) of the EStG. Point 2 of the second sentence of 
Paragraph 32(5) of the KStG is also satisfied. In accordance with point 2 of the 
second sentence of Paragraph 32(5) of the KStG, the right to reimbursement 
within the meaning of the first sentence of Paragraph 32(5) of the KStG is 
applicable only to income from capital that would be excluded from consideration 
in the calculation of income pursuant to Paragraph 8b(1) of the KStG. The 
legislation thus ensures, first, that the right to reimbursement is not reduced, 
within the meaning of Paragraph 8b(5), by flat-rate, non-deductible operating 
costs. Secondly, and above all, the cross-reference to Paragraph 8b(1) of the KStG 
prevents tax on income from capital from being reimbursed in the cases provided 
for in Paragraph 8b(4), as amended, that is to say in cases involving the taxable 
holding of free-float shares. Henceforth, therefore, the reimbursement procedure 
provided for in Paragraph 32(5) of the KStG extends without restriction – to 
include both block and free-float shareholdings – only to earnings accrued up to 
28 February 2013; see the second sentence of Paragraph 34(7a) in the version of 
the EuGHUmsG of 21 March 2013. That condition is satisfied in the case of the 
dividend payments in the years at issue. 
Point 3 of the second sentence of Paragraph 32(5) of the KStG, according to 
which the income from capital must not be attributed, under the law of another 
country, to any person who would not be entitled to reimbursement under 
subparagraph (5) if he were in direct receipt of the income from capital in 
question, is satisfied in the case at issue. In particular, the dividends at issue are 
not attributed under the law of the other country, for the purposes of group 
taxation for example, to any person who would not himself qualify for 
reimbursement within the meaning of Paragraph 32(5) of the KStG. Finally, an 
entitlement on the part of the applicant to full or partial reimbursement of the tax 
on income from capital is not excluded on the basis of the application mutatis 
mutandis of Paragraph 50d(3) of the EStG, since the conditions laid down there 
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are not met. Accordingly, the question of whether this condition [under 
Paragraph 32(5)] is lawful can be left open. 
The requirement contained in point 5 of the second sentence of Paragraph 32(5) of 
the KStG, however, appears to be problematic. Under that provision, there is no 
right to reimbursement where the creditor or a shareholder having a direct equity 
holding in the creditor can offset the withheld income from capital or deduct it as 
an operating cost or as work-related outgoings; even the possibility of carrying 
forward the set-off is sufficient in this regard. Reimbursement under 
Paragraph 32(5) of the KStG is thus granted only where the disadvantage to 
foreign dividend recipients as compared with domestic dividend recipients cannot 
be equalised by set-off, deduction from the basis of assessment or carry-forward 
of the set-off in the other country. 
In addition, the fifth sentence of Paragraph 32(5) of the KStG requires the 
applicant to prove that that condition is met by submitting a certificate from the 
foreign tax administration stating that the German tax on income from capital 
cannot be offset, deducted or carried forward and that no set-off, deduction or 
carry-forward hast actually taken place either. In that connection, this Chamber 
understands that legislative provision to mean that the certificate is to be 
submitted in respect of both the creditor of the income from capital, that is to say 
the applicant, and all shareholders with a direct or indirect equity holding in the 
creditor. This is because the provision in question is formulated in a general way 
and must therefore be understood generally and, thus, as applying at all levels. 
This is confirmed by its schematic connection with point 5 of the second sentence 
of Paragraph 32(5) of the KStG, which requires that the creditor, or a shareholder 
with a direct or indirect equity holding in the creditor, must not be able to offset 
the tax on income from capital or deduct it as an operating cost or as work-related 
outgoings. In the light of that condition, the requirement of a certificate, which 
clearly relates to point 5 of the second sentence of Paragraph 32(5) of the KStG, 
must for schematic reasons be extended to all levels of equity participation too. 
In the case at issue, however, it is not possible to determine whether the condition 
laid down in point 5 of the second sentence of Paragraph 32(5) of the KStG has 
been met. The applicant is wholly owned by The Amber Chemical Co. Ltd.. The 
latter is a listed company. Exactly how tax on income from capital received by 
The Amber Chemical Co. Ltd. or, in particular, by its shareholders is treated is not 
readily apparent. With regard to the applicant itself, it submitted a certificate from 
HMRC, the United Kingdom tax authority, dated 12 August 2014. That certificate 
confirms, both for the 2006/2007 financial year (dividend receipts in 2006 and 
2007) and for the 2008/2009 financial year (dividend receipts in 2008), that no 
relief on the German tax on income from capital has occurred and cannot occur in 
the future either. Whether, from the point of view of the legally relevant facts, this 
is due to a dividend exemption or the absence of any income to carry forward 
because of a loss-making position is – contrary to the defendant’s view – 
immaterial in this regard. In a domestic situation, after all, tax on income from 
capital is offset and reimbursed even in a loss-making year. 
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As regards the requirement that neither the applicant nor any shareholders with a 
direct or indirect shareholding in it should have offset the withheld tax on income 
from capital or taken it into account for tax reduction purposes, it is not possible to 
adduce proof to show that this was the case. It is true that the applicant has 
submitted tax calculations for The Amber Chemical Co. Ltd., its parent company. 
Even if it were to be assumed on that basis, as the applicant does, that no German 
withholding taxes have been offset at the level of The Amber Chemical Co. Ltd., 
there are no such conclusions in relation to the shareholders of The Amber 
Chemical Co. Ltd. in their capacity as indirect shareholders in the applicant. In 
addition, the aforementioned calculations do not constitute a foreign certificate 
within the meaning of the fifth sentence of Paragraph 32(5) of the KStG. 
It is clear from the global non-offset certificates from HMRC dated 24 May 2016 
submitted by the applicant that offsetting is generally not possible in the case of 
shareholders with only an indirect shareholders (that is to say extending back from 
the applicant’s direct shareholders). This, however, is a general explanation by the 
UK tax authorities that bears no specific relation to the case at issue or, in 
particular, to the applicant’s indirect shareholders. In addition, it is not known, 
and, moreover, cannot be ascertained, in which countries the indirect 
shareholders – that is to say the direct shareholders of the listed company The 
Amber Chemical Co. Ltd. – were resident in the years at issue. As a result, the 
global non-offset certificates also suffer from the fact that they were not 
recognisably issued by the competent tax administration concerned. Against that 
background, the applicant’s application for reimbursement under Paragraph 32(5) 
of the KStG would have to be rejected. The position would be different, however, 
if the requirement contained in point 5 of the second sentence and the fifth 
sentence of Paragraph 32(5) of the KStG infringed the free movement of capital 
and, for that reason, were not to be applied. In that event, the applicant’s 
application for reimbursement would have to be granted. Accordingly, the 
question as to whether the free movement of capital precludes the rule contained 
in point 5 of the second sentence and the fifth sentence of Paragraph 32(5) of the 
KStG is material to the judgment to be given. 
This Chamber’s concerns from the point of view of EU laws relate to 
infringement of the free movement of capital (Articles 63(1) and 65 TFEU), as a 
matter of primary Community law, and infringement of the principles of 
proportionality and effectiveness. 
1. First question: Infringement of the free movement of capital 
(Articles 63(1) and 65 TFEU) 
As a foreign company subject to limited tax liability, the applicant is charged tax 
on income from capital at 15% on the dividends which it receives, and is not able 
to offset that tax or have it refunded, in accordance with point 5 of the second 
sentence and the fifth sentence of Paragraph 32(5) of the KStG. In the case of 
German companies subject to unlimited tax liability, on the other hand, tax on 
income from capital is offset in full against their corporation tax liability and, 
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where appropriate, reimbursed. That unequal treatment prompts concerns on the 
part of this Chamber as to whether this constitutes an infringement of the free 
movement of capital under Articles 63(1) and 65 TFEU. 
It follows from the Court’s settled case-law that the measures prohibited by 
Article 63(1) TFEU, as restrictions on the movement of capital, include those that 
are such as to discourage non-residents from making investments in a Member 
State or to discourage that Member State’s residents from doing so in other States 
(see, inter alia, the judgments of 13 November 2019, College Pension Plan of 
British Columbia v Finanzamt München, C-641/17, paragraph 48, and of 10 April 
2014, Emerging Markets Series of DFA Investment Trust Company, C-190/12, 
paragraph 39). Specifically, the less favourable treatment by a Member State of 
dividends paid to foreign companies, compared to the treatment of dividends paid 
to domestic companies, is liable to deter companies established abroad from 
pursuing domestic investments and, consequently, amounts to a restriction of the 
free movement of capital, prohibited, in principle, under Article 63 TFEU (see, on 
the taxation of non-resident pension funds that receive dividends from the 
Community area, the judgments of 13 November 2019, College Pension Plan of 
British Columbia v Finanzamt München, C-641/17, paragraph 49; of 20 October 
2011, Commission v Germany, C-284/09, paragraphs 72 and 73; and of 
22 November 2012, Commission v Germany, C-600/10, paragraph 15). 
The application to dividends which are paid to companies established abroad of a 
tax burden heavier than that applied to dividends of the same kind which are paid 
to companies established in national territory constitutes such less favourable 
treatment (see, on the taxation of non-resident pension funds in receipt of 
dividends from the Community area, the judgments of 13 November 2019, 
College Pension Plan of British Columbia v Finanzamt München, C-641/17, 
paragraph 49, and of 17 September 2015, Miljoen and Others, C-10/14, C-14/14 
and C-17/14, paragraph 48). The same is true of the situation in which dividends 
paid to a domestic company benefit from a full or substantial exemption from tax, 
while dividends paid to a foreign company are subject to final withholding tax 
(see the judgment of 8 November 2012, Commission v Finland, C-342/10, 
paragraphs 32 and 33). 
The foregoing constitutes an interference with the free movement of capital 
provided for in Article 63 TFEU, which must be protected. This is because 
Paragraph 32(5) of the KStG makes the reimbursement of tax on income from 
capital to companies resident abroad that have an equity holding of less than 10% 
or 15% in a company resident in national territory subject to stricter conditions 
than the reimbursement of tax on income from capital to companies resident in 
Germany that have an equity holding of less than 10% or 15% in a company 
resident in national territory. The reason for this is that tax on income from capital 
is reimbursed to foreign companies only if the creditor, or a shareholder with a 
direct or indirect equity holding in the creditor, cannot offset the withheld tax on 
income from capital or deduct it as an operating cost or as work-related outgoings. 
The fifth sentence of Paragraph 32(5) of the KStG also requires that proof of the 
ACC SILICONES 
 
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foregoing be furnished in the form of the submission of a certificate from the 
foreign tax administration. That requirement does not apply, however, to the 
reimbursement of tax on income from capital to domestic companies. 
This Chamber is uncertain whether that interference is justified. It is unclear 
whether the rule contained in point 5 of the second sentence and in the fifth 
sentence of Paragraph 32(5) of the KStG is justified in the light of Article 65(1)(a) 
TFEU. In accordance with Article 65 TFEU, the provisions of Article 63 are to be 
without prejudice to the right of Member States to apply the relevant provisions of 
their tax law which distinguish between taxpayers who are not in the same 
situation with regard to their place of residence or with regard to the place where 
their capital is invested. In so far as that provision is a derogation from the 
fundamental principle of the free movement of capital, it must be interpreted 
strictly. Accordingly, it cannot be interpreted as meaning that all tax legislation 
which draws a distinction between taxpayers on the basis of their place of 
residence or the State in which they invest their capital is automatically 
compatible with the FEU Treaty (see the judgment of 13 November 2019, College 
Pension Plan of British Columbia v Finanzamt München, C-641/17, 
paragraph 63). Indeed, the derogation in Article 65(1)(a) TFEU is itself limited by 
Article 65(3) TFEU, which provides that the national provisions referred to in 
paragraph 1 of that article ‘shall not constitute a means of arbitrary discrimination 
or a disguised restriction on the free movement of capital and payments as defined 
in Article 63 [TFEU]’ (see the judgments of 13 November 2019, College Pension 
Plan of British Columbia v Finanzamt München, C-641/17, paragraph 63, and of 
10 April 2014, Emerging Markets Series of DFA Investment Trust Company, 
C-190/12, paragraphs 55 and 56). 
A distinction must, therefore, be made between the differences in treatment 
authorised by Article 65(1)(a) TFEU and discrimination prohibited by 
Article 65(3) TFEU. In that regard, for national tax legislation to be capable of 
being regarded as compatible with the provisions of the Treaty concerning the free 
movement of capital, the difference in treatment must concern situations that are 
not objectively comparable or must be justified by an overriding reason in the 
public interest (see the judgments of 13 November 2019, College Pension Plan of 
British Columbia v Finanzamt München, C-641/17, paragraph 64, and of 10 May 
2012, Santander Asset Management SGIIC and Others, C-338/11 to C-47/11, 
paragraph 23). In that connection, the comparability of a cross‑ border situation 
with an internal one must be examined having regard to the aim pursued by the 
national provisions at issue as well as their purpose and content (see the judgment 
of 13 November 2019, College Pension Plan of British Columbia v Finanzamt 
München, C-641/17, paragraph 65). 
Moreover, the position of non-resident shareholders becomes comparable to that 
of resident taxable persons as soon as a State, either unilaterally or by way of a 
convention, imposes a charge to income tax not only on resident taxable persons 
but also on non-resident taxable persons in respect of the dividends which they 
receive from a resident company (see the judgments of 8 November 2007, 
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Amurta, C-379/05, paragraph 38, and of 20 October 2011, Commission v 
Germany, C-284/09, paragraph 56). In fact, it is solely because of the exercise by 
that State of its taxing powers that, irrespective of any taxation in another Member 
State, a risk of a series of charges to tax or economic double taxation may arise. In 
such a case, in order for non-resident recipient companies not to be subject to a 
restriction on the free movement of capital prohibited, in principle, by Article 63 
TFEU (ex Article 56 EC), the State in which the company making the payment 
has its registered office is obliged to ensure that, under the procedures laid down 
by its national law in order to prevent or mitigate a series of liabilities to tax, non-
resident recipient companies are subject to the same treatment as resident recipient 
companies (see the judgments of 8 November 2007, Amurta, C-379/05, 
paragraph 39, and of 20 October 2011, Commission v Germany, C-284/09, 
paragraph 56). 
In the case at issue, the Federal Republic of Germany has chosen, in the case of 
free-float dividends paid to companies resident in Germany, to exercise its tax 
sovereignty by levying a tax on income from capital with an option to offset at a 
later date. The Federal Republic of Germany has also opted, however, to impose 
on free-float dividends paid to foreign companies a tax levy in the form of a tax on 
income from capital. From the point of view of avoiding a series of liabilities to 
tax, they are in a comparable position. There is nothing to indicate that companies 
resident in national territory which are in receipt of free-float dividends are not 
comparable with companies resident abroad which are in receipt of free-float 
dividends. To this extent, there would appear to be no justification for attaching 
different conditions to the acquisition of a reimbursement or set-off of tax on 
income from capital. 
This Chamber is also uncertain whether the unequal treatment is justified under 
the rule in Amurta. Thus, in accordance with the rule in Amurta, the definitive 
collection of tax on income from capital in the source State may be justified if the 
State of residence offsets it in full against the tax applied and, where appropriate, 
reimburses it (see, in that regard, the judgment of 8 November 2007, Amurta, 
C-379/05, paragraph 79 et seq.); the provision in point 5 of the second sentence of 
Paragraph 32(5) of the KStG, which is the source of the uncertainty here, might 
take this into account (paragraph 61). In the case at issue, the option to effect such 
a set-off in the applicant’s country of residence might result from Article 23(2)(a) 
of the DBA-GB. Under that provision, German tax payable under the laws of 
Germany, whether directly or by deduction, on profits or income from sources 
within Germany are to be allowed as a credit against any United Kingdom tax 
computed by reference to the same profits or income by reference to which the 
German tax is computed. Consequently, although the agreement provides for a 
set-off, that set-off is confined to the United Kingdom tax payable on dividends 
distributed by a German corporation. This does not therefore guarantee that the 
German tax on income from capital will be offset at the full rate of 15% [of the 
dividends paid]. 
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As regards the indirect shareholders, since it is effectively impossible to identify 
who these are, it cannot be determined whether there are any bilateral set-off 
options allowing tax on income from capital to be offset in the country of 
residence. In addition, the extension of point 5 of the second sentence of 
Paragraph 32(5) of the KStG to, in particular, all indirect shareholders too 
necessitates investigations which a domestic company in receipt of dividends is 
not required to carry out. 
2. Second question: infringement of the principle of [proportionality] and 
the principle of effectiveness 
In the event that the first question is answered in the negative and it is therefore 
compatible with the free movement of capital for an undertaking resident abroad 
which receives dividends from free-float shares to be required, for the purposes of 
the reimbursement of tax on income from capital, to provide proof, in the form of 
a certificate from the foreign tax administration, that neither it nor a shareholder 
with a direct or indirect equity holding in it can offset the tax on income from 
capital or deduct it as an operating cost or as work-related outgoings, the Chamber 
is uncertain as to whether the principle of proportionality and the principle of 
effectiveness preclude the requirement of a certificate to that effect in the case 
where it is effectively impossible for a recipient of dividends from free-float 
shares which is resident abroad to provide that certificate. 
In accordance with the principle of effectiveness, the Member States must take all 
measures necessary to give the fullest possible effect to Community law. The 
principle of effectiveness states that the exercise of the rights conferred by 
Community law must not be rendered practically impossible or excessively 
difficult (see the judgments of 8 March 2001, Metallgesellschaft, C-397/98 and 
C-410/98, paragraph 85, and of 2 October 2003, Weber’s Wineworld, C-147/01, 
paragraph 38). The principle of proportionality means that the measures must be 
appropriate for attaining those objectives and must not go beyond what is 
necessary in order to attain them (see the judgment of 26 February 2019, 
Wächtler, C-581/17, paragraph 63). 
Even if the condition laid down in point 5 of the second sentence of 
Paragraph 32(5) of the KStG is compatible with the free movement of capital, the 
requirement to prove that that condition is met in relation to all direct and indirect 
shareholders by submitting certificates to this effect from the foreign tax 
authorities, in accordance with the fifth sentence of Paragraph 32(5) of the KStG, 
poses considerable difficulties for a taxable person seeking reimbursement of tax 
on income from capital – in the present case, the applicant. The production of 
those certificates sometimes necessitates a disproportionate amount of 
investigative effort or – as in the case at issue – can even be practically 
impossible. In those circumstances, the exercise of the free movement of capital is 
made practically impossible for a taxable person seeking reimbursement of tax on 
income from capital – in the present case, the applicant. In laying down that 
requirement, therefore, the Federal Republic of Germany has not taken a measure 
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that gives the fullest possible effect to Community law, but one which would even 
have the effect of thwarting its implementation. 
Moreover, the law does not provide for any exceptions to the requirement of proof 
laid down in the fifth sentence of Paragraph 32(5) of the KStG. Under that 
statutory provision, it is immaterial whether it is effectively impossible for the 
creditor to provide proof or certificates from the foreign tax authorities, or 
whether it is unreasonable to require him to do so. This Chamber is uncertain 
whether this is compatible with the demands of proportionality applicable in a 
State governed by the rule of law and, in particular, with the principle of 
effectiveness recognised in EU law. Even though the Court of Justice generally 
grants Member States a broad discretion with respect to the procedure for 
transposing the substantive law required under EU law, there are limits. Those 
limits are exceeded, however, where the provision of proof is effectively rendered 
impossible.