About Us
Global Law Experts Logo
Global Law Experts Logo

Find a Global Law Expert

Practice Area


Since 2010, the Global Law Experts annual awards have been celebrating excellence, innovation and performance across the legal communities from around the world.

Reform of Sec. 50d (3) EStG (anti-treaty shopping provision)

posted 3 years ago

At the end of 2020 the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) presented a draft bill for a Withholding Tax Relief Modernisation Act (Abzugsteuerentlastungsmodernisierungsgesetz, AbzStEntModG), which is intended in particular to address the illegality of Sec. 50d (3) German Income Tax Act (Einkommensteuergesetz, EStG) under European Union (EU) law. It also contains several tightening measures.

The European Court of Justice (ECJ) has already declared Sec. 50d (3) EStG to be unlawful under EU law in two judgments, both in the version applicable from 2007 and from 2012 (judgments of June 16, 2018, C-440/17 and of December 20, 2017, C-504/16). The ECJ had thus confirmed the opinion of the Cologne Fiscal Court (FG Köln). As a result of the 2017 ECJ ruling, the Federal Ministry of Finance (BMF) took a position in a letter, dated April 4, 2018 and regulated what should apply to the interpretation of Sec. 50d (3) of the old version of the German Income Tax Act (EStG).

Only recently, the FG Köln once again expressed doubts about the conformity of Sec. 50d (3) EStG with EU law, this time in its current version.

The draft bill now presented provides for comprehensive changes to Sec. 50d (3) EStG.

A claim for relief regarding German withholding tax exists for foreign companies,

  • insofar as persons participate in/benefit from it who would also be entitled to this entitlement in the case of direct withdrawal (personal entitlement to relief) or
  • insofar as the source of income has a substantial connection with the economic activity of the foreign company (factual relief entitlement).

The new regulation provides for the possibility of a rebuttal and an exchange clause.

The individual changes to the constituent elements are presented below:

Personal discharge authorisation

It must be examined whether the entitlement to relief at the level of the persons involved in the foreign company results from the same legal basis (e.g. the same Double Tax Agreement, DTA). The draft bill explicitly emphasises that the same legal basis must exist. Therefore, it is not possible to affirm the personal entitlement to relief if it arises, for example, from a different DTA. This also applies if the relief would be granted in the same amount. This represents a significant tightening in comparison to the current version of Sec. 50d (3) EStG.

Substantive discharge entitlement

The draft bill requires a substantial connection between the source of income and an economic activity of the foreign company.

Accordingly, the following shall not be considered as economic activities:

  • The generation of income and its pure transmission (passive investment management) as well as
  • Activities that are not carried out with a business set up appropriately for the business purpose.

Active investment management, on the other hand, is supposed to constitute an economic activity of the foreign company.

Rebuttal and stock exchange clause

Up to now, only counterevidence was possible within the scope of the factual discharge entitlement. In future, independent counterevidence will be possible. Accordingly, relief is possible even if neither a personal nor an objective entitlement to relief exists, provided that the foreign company can prove that none of the main purposes of its interposition is exclusively to obtain a tax advantage.

According to the explanatory memorandum, all non-tax reasons should be considered for the purposes of the rebuttal, including those arising from a group relationship (principle purpose test). The underlying concepts such as “principal purpose” and “obtaining a tax advantage” are deposited in the principal purpose test and the ECJ case law, but they remain undefined legal concepts and can therefore make it considerably more difficult to provide counter-evidence under certain circumstances.

The stock exchange clause regulates, as before, that Sec. 50d (3) EStG should not apply to listed companies. According to the draft bill, however, the clause should only apply to the direct (immediate) shareholder, so that indirect shareholders would be excluded from the application of the stock exchange clause. The exception for investment funds is also to be deleted without replacement.

Scope of application

Sec. 50d (3) EStG shall in future only be directly applicable to claims for relief from capital gains tax or from tax deduction according to Sec. 50a EStG. Corresponding additions in Sec. 43b (1), sentence 1, 50g (4), sentence 2 and 44a, (9) EStG are, however, to ensure the applicability of the regulation in other cases of withholding taxes.

Assessment and outlook

The reform of Sec. 50d (3) EStG is urgently needed, as the norm in its current version obviously violates applicable (EU) law.

Therefore, the planned tightening of the personal relief entitlement, which would significantly restrict the possibility of relief, is to be criticised.

The so-called principle purpose test is also based on undefined legal terms (“one of the main purposes” and “tax advantage”). It is questionable to what extent the tax authorities will allow the interpretation of these terms. Since the scope of interpretation of these terms has a considerable influence on the scope of application of the standard, we believe that improvements should be made here.

The reduction of the applicability of the stock exchange clause must also be viewed critically and narrows the actual scope of the relief in its scope of application.

The new regulations are to come into force on the day the law is promulgated. When exactly the legislative process will be completed cannot be estimated at present. In principle, it is not expected to be completed before spring 2021.

We will be happy to assist you in checking relief entitlements in accordance with Sec. 50d (3) of the EStG.

If you have any further questions, please do not hesitate to contact us.

We have collected the information available on our Corona news portal which includes a constantly updated overview regarding the measures to tackle financial impacts of the Corona crisis.


Find the right Legal Expert for your business

The premier guide to leading legal professionals throughout the world

Practice Area
0 m+


who are already getting the benefits

Sign up for the latest legal briefings and news within Global Law Experts’ community, as well as a whole host of features, editorial and conference updates direct to your email inbox.

Naturally you can unsubscribe at any time.

Newsletter Sign Up

About Us

Global Law Experts is dedicated to providing exceptional legal services to clients around the world. With a vast network of highly skilled and experienced lawyers, we are committed to delivering innovative and tailored solutions to meet the diverse needs of our clients in various jurisdictions.

Contact Us

Stay Informed

Join Mailing List