On 8 April 2024, the German government issued a response to an inquiry from the leading opposition parties in the lower house of parliament regarding the status of dividend withholding tax (WHT) exemption certificates and refund procedures for foreign shareholders.

Contextual:
In Germany, there is a domestic dividend withholding tax (WHT) rate of 26.375%, which can be reduced or zeroed under double tax treaties (DTTs) or the EU parent-subsidiary directive. However, obtaining a WHT exemption certificate or refund requires thorough documentation to demonstrate compliance, made more challenging by the anti-treaty shopping rule outlined in section 50d (3) of the income tax code (ITC). Despite initiatives like implementing electronic filing in 2023, processing delays remain, prompting concerns among stakeholders.

Inquiry and Response: Following revisions to the anti-treaty shopping rule in 2021, processing applications for WHT exemptions and refunds slowed significantly. Notably, the processing time for dividend WHT refunds now exceeds 20 months, causing concern among stakeholders. The government’s response to inquiries provided insight into the backlog at the federal tax office.

Key Statistics and Concerns: Questions posed by opposition parties revealed a backlog of 2,666 pending exemption certificates and 61,341 refund applications, with processing times averaging 480 and 615 days, respectively. Rejection rates have also risen, indicating challenges in meeting application criteria. Despite increased filing, the number of processed applications decreased, exacerbating the issue.

Personnel and Solutions: With only 87 employees responsible for processing applications, the federal tax office faces staffing challenges. The government plans to increase personnel to address the backlog and improve processing efficiency.