Box privilege

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As participation exemption in is tax law the privilege referred to, under certain conditions, investment income from corporations for purposes of the corporation or trade tax to cut. Since the regulations are intended to avoid double taxation , the term "privilege" is misleading.

Corporate tax nesting privilege

According to the provision of Section 8b (4) KStG in conjunction with Section 8b (1) KStG, domestic and foreign dividends from investments in corporations are not included if the direct participation in the share capital is at least 10% at the beginning of the calendar year. In these cases, the investment income is deducted from the tax profit outside the balance sheet. According to Section 8b (5) KStG, 5% of the investment income must be added to the profit off-balance sheet, so that on balance 95% of the income remains tax-free. The addition of 5% is intended to reverse the deduction of operating expenses associated with the investment income.

Trade tax box privilege

The trade tax is calculated according to the trade income. The starting variable for the trade income is the profit from commercial operations determined in accordance with the provisions of the Income Tax Act and the Corporation Tax Act . Be in business assets held in a corporation shares, the dividends received by it must first be recognized as business income. Individuals can reduce this income by 40% off the balance sheet , while corporations can treat this income almost entirely tax-free, 5% are considered non-deductible business expenses. The profit from commercial operations therefore includes 60% of the distribution income for natural persons and 5% for corporations.

Since the distribution is already subject to trade tax at the distributing corporation, a new taxation for the receiving corporation would amount to double taxation. For this reason, the law allows, under certain conditions, a reduction in this investment income, provided it is included in the profit .

requirements

There is that in the trade tax

  • national nesting privilege
  • international nesting privilege

each with its own requirements.

National nesting privilege

The factual prerequisites result from § 9 No. 2a GewStG as follows:

  • Profits from Shares
  • to a non-tax exempt (i.e. subject to trade tax)
  • domestic
  • Corporation
  • if participation at the beginning of the survey period (i.e. only once at the beginning, not mandatory within the survey period)
  • amounts to at least 15% (up to EZ 2008: 10%) of the share capital
  • and profits at the stated determination of profits were

The trade tax nesting privilege at a glance

Shareholder of the corporation is:
EU / PersGes KapGes
Starting point:
§ 7 GewStG		 Starting point:
§ 7 GewStG
Due to § 15 EStG in conjunction with § 3 No. 40 sentence 2 EStG, dividends are included at 60% in the initial figure. Due to § 8b KStG (dividend privilege), dividends are 95% exempt from taxation (except for free float according to § 8b para. 4 KStG).
Participation ≥ 15% Participation <15% Participation ≥ 15% Participation <15%
Reduction of the remaining dividends included in the initial figure
( Section 9 No. 2a GewStG)		 Allocation of dividends exempt from tax in accordance with Section 3 No. 40 EStG
( Section 8 No. 5 GewStG)		 Trade tax box privilege not necessary, since dividends are not included in the output figure to 95%
( § 9 No. 2a GewStG)		 Allocation of the “tax-free” dividends according to § 8b KStG
Debit on dividends: Debit on dividends: Debit on dividends: Debit on dividends:
60
% with income tax 0% with trade tax		 60
% with income tax 100% with trade tax		 5% with KSt
5% with GewSt		 5% with KSt
100% with GewSt

The overview shows the current legal situation in VZ 2009 using the partial income method .

consequences

The consequence of the box privilege is the reduction of the distribution profits as far as they are included in the profit, so that a double levying of the trade tax on such income is avoided.

In the case of corporations, there is no longer any reduction because (due to the exemption for corporate income tax purposes) the profit on which the trade tax is based was not affected by the distribution income.

For sole proprietorships, a 60% reduction will have to be made on a regular basis. 

Beispiel:
An der A-GmbH sei
 a) ein bilanzierender Einzelunternehmer
 b) die B-GmbH
jeweils zu 100 % beteiligt. Die A-GmbH soll 300.000 € Dividende ausschütten.
der Jahresüberschuss (Jü) incl. der Dividende soll 500.000 € betragen.

                    a)                                  b)

                  A-GmbH                              A-GmbH
                     |                                   |
                     |                                   |
                     |                                   |
                     |                                   |
              Einzelunternehmer                        B-GmbH      
            (Anteilseigner zu 100 %)             (Anteilseigner zu 100 %)

 Lösung:

               JÜ:   500.000                        JÜ:    500.000
§ 3 Nr. 40 EStG: - 120.000         § 8b Abs. 1 KStG:  - 300.000
                                     § 8b Abs. 5 KStG:   + 15.000
                    ---------                             --------
    § 15 EStG:     380.000                    z.v.E.:    215.000



                      380.000                              215.000
§ 9 Nr. 2a GewStG: - 180.000        § 9 Nr. 2a GewStG:       0
                    ---------                             --------
     Gewerbeertrag:   200.000            Gewerbeertrag:    215.000

As a result, in case a) the annual surplus of € 500,000 for trade tax was reduced by the dividend of € 300,000. In case b) there is the same effect, but the 5% lump sum non-deductible business expenses may not be reduced.

International nesting privilege

The factual prerequisites result from § 9 No. 7 GewStG as follows:

  • Profits from Shares
  • in a corporation
  • with headquarters abroad
  • if the participation since the beginning of the survey period (i.e. WITHOUT interruption)
  • amounts to at least 10% of the nominal capital in the case of a participation in EU corporations or at least 15% of the nominal capital in the case of a participation in non-EU corporations
  • and draws its income (almost) exclusively from investments of at least a quarter
  • and can provide further evidence.

International regulations

Article 10 of the OECD model double taxation agreement provides for a participation limit of up to 25% for the international box privilege. In these cases, the state in which the debtor of the dividend is resident may levy a maximum of 5% tax on the dividend payments to beneficiaries of another contracting state. An exception is made for dividend recipients who have a permanent establishment in the country of residence of the dividend-paying company. In these cases, the dividend is allocated to the local branch.