Key Post The taxation of dividends from German companies

Discussion in 'Investments' started by Brendan Burgess, 13 Jan 2017.

  1. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    36,336
    Last edited: 5 Nov 2018
    (Thanks to Gordon Gekko for correcting an earlier version of this.)

    When you get a dividend from a German company through your Irish stockbroker, you should get a dividend certificate as follows:

    Gross dividend: €100
    German tax deducted: €26.375
    Net German dividend: €73.625
    Encashment tax :€14.725 [ 20% of net German Dividend] (On some occasions, the broker did not deduct this tax.)
    Net dividend: €58.90



    You paid €26.375 in German withholding tax.
    You are entitled to claim a credit for €15 in your Irish tax return.(15% of the dividend.)
    You must claim the balance of €11.375 from the German tax authorities

    upload_2017-1-13_10-30-21.png

    On your Irish tax return
    There is a box which is very misleading which says "amount of foreign tax deducted". You don't actually put in €26.29 . You put in only €15.

    In a separate box, you put in the encashment tax of €14.74

    To claim the German tax

    Download the first form in this list from the German Revenue's website. It looks daunting, but it's not really.

    There are three copies of the form within the PDF - for the German Revenue, for you, for the Irish Revenue. But once you fill in one, the others are filled in automatically.

    I put in two dividends on one form, and it did not seem to total them properly. It just took the second dividend as the sub-total. So I stuck in a third figure equal to the sub-total and so the form is correct. (If you have more than 5 dividends, you also use the second form Attachment E-01)

    Sign the form in the appropriate places.

    Send it to the Income Tax section of your own local Revenue District. ( There is no special office.)
    They will certify it and send it back to you.
    Send it to the German address on the form.

    Notes

    The copy certified correct by the authority should be forwarded by the claimant to the Bundesamt für Finanzen by the end of the fourth calendar year following that in which the dividends and/or interest have been received.

    So for Dividends received in 2013, the claim must be submitted by the end of 2017.

    Fill in your bank details as the money is transferred.
    Make sure to sign it.
    Keep copies of all the documentation - the dividend certs and the Revenue's certification of the claim in case the whole lot goes missing in the Irish Revenue or the German Revenue. Of cou

     

    Attached Files:

    Last edited: 5 Nov 2018
  2. Gordon Gekko

    Gordon Gekko Frequent Poster

    Posts:
    3,303
    Hi Brendan,

    Good post; a few minor changes:

    - The German withholding should be 26.375%.
    - The net then becomes 73.63
    - The encashment tax then becomes 14.73
    - I'd suggest including the fact that the claimant should write to the Income Tax Section of their own local Revenue District.
    - I'd also advise people to keep copies of everything, not just the dividend certs.

    Why this can't be done on an omnibus basis is beyond me (e.g. let Brendan Burgess and everyone else claim their 26.375 and then let Revenue claim a single payment from the German authorities.
     
  3. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    36,336
    Thanks again Gordon. Updated.
     
  4. Bluebeard

    Bluebeard Registered User

    Posts:
    6
    Brendan

    This post about German withholding tax is a subset of a wider problem. I am addressing the fact that I hold shares from several European countries, whose payors deduct more withholding tax than is due under the relevant tax treaty with Ireland.

    My cost of unrecovered excess withholding tax is gradually escalating to a level where I'm examining what to do.

    All my shares in question are held in various broker nominee accounts.

    In relation to German tax I have examined the form referenced in your post above. This form has the same problem I have encountered pursuing other solutions, see page 7 of the German form where the details required for dividends received in a custodian account are specified. Some of this information is simply not available to me as the beneficial owner, where I do not have dividend vouchers in my own name.

    This is a complete PITA, excess withholding tax is just money down the drain. Jurisdictions have no incentive to facilitate refunds. I wonder whether there is some EU agency to complain to, there should be an EU-wide system for refunds, perhaps on the lines of VAT systems.
     
  5. jpd

    jpd Frequent Poster

    Posts:
    1,507
    Maybe the Germans could follow the French - now there's an idea!

    The French reduced the Dividend Withholding Tax to 12.8% in 2018 so this is now below the 15% limit in the Double taxation treaty - so no more tax to be reclaimed!

    Why don't the EU countries just reduce it to 15% and leave it at that.

    I have € 13 to reclaim from the Germans, but it isn't worth the time and cost.
     
  6. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    36,336
    I submitted a claim a few weeks after the 4 year deadline and they refused me a refund.

    I submitted a claim over a year ago well within the time limit and they are still processing it.

    Brendan
     
  7. Bluebeard

    Bluebeard Registered User

    Posts:
    6
    Since I do not hold German shares in certificated form, and I do not see how I can produce the documents they specify for custodial accounts, this route does not seem promising. Exchanges with Taxback.ie about this topic reached the same conclusion. I do not have proof in the form they require that I am the beneficial owner of the dividends in question. In effect, Germany (and other countries) make me pay extra tax as if Ireland did not have a tax treaty, and in effect this extra tax is paid out of my after-tax income.

    This a discriminatory obstacle to capital movement in the EU.

    The ROS income tax software does not appear to deal properly with foreign tax on dividends either.
     
  8. jpd

    jpd Frequent Poster

    Posts:
    1,507
    I have filed returns with foreign dividends with foreign tax paid for many years now and I find that ROS works perfectly. The calculations involved in working out the amounts chargeable to tax and the credit for the foreign tax paid is incredibly complex and not for the faint-hearted. But I am able to duplicate the ROS calculations for the income tax on a spreadsheet and it is correct. This year I have a USC charge and that seems even more complicated - I haven't sat down to check their calculation, but I'm sure it is correct
     
  9. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    36,336
    I am not sure that ROS is the problem, it's the Form 11 wording which caused me a problem until Gordon pointed it out.

    Income from all other foreign non-deposit interest,royalties, annuities, dividends etc. on which foreign tax deducted :

    Amount of foreign tax deducted
    :

    I put in the amount of foreign tax deducted, as asked, and then later contacted Revenue to correct it.

    Brendan
     
  10. joe sod

    joe sod Frequent Poster

    Posts:
    585
    Thats very true, Id say a handful of accountants in ireland would be able to do the calculations manually themselves.
     
    RETIRED2017 likes this.
  11. Bluebeard

    Bluebeard Registered User

    Posts:
    6
    Slight thread drift:

    I have too have been reproducing the ROS figure for my foreign tax credit on a spreadsheet. This is an iterative calculation, regrossing the net foreign taxed dividends at the lower of the Irish "effective rate" and the aggregate foreign tax rate. It is iterative because the "effective rate" depends inter alia on the regrossed foreign income, hence the circularity. The effect is to give a deduction for the non-credited part of the aggregate foreign tax.

    The credit for foreign tax allowed in one's USC calculation I can also reproduce. This gives a credit for the proportion that gross foreign taxed dividends represent of total income liable to USC (including - different from income tax - the gross amount of those dividends), multiplied by one's USC liability on that total income. The effect is to give a USC credit at the taxpayer's average USC rate across all income liable to USC. One can only speculate as to the logic.

    The foreign taxed dividends that I'm referring to here do not include jurisdictions such as USA etc that are reported separately on Form 11.

    I said that the ROS calculations do not seem to deal "properly" with the foreign tax credit - I meant that the complexity of treaty-by-treaty credits described in Schedule 24 TCA seems to be simplified by ROS, by aggregating all foreign-taxed dividends (other than USA etc) into one calculation. Whether that is to the advantage or disadvantage of a particular taxpayer will depend on the numbers.