The Hamburg Fiscal Court has reservations about the taxation of free float dividends in accordance with Section 8b (4) KStG as amended, but ultimately considers it to be constitutional. The judgement (case no. 1 K 87/15) is now pending before the Federal Fiscal Court (case no. I R 29/17).
The tax court does have reservations with regard to the inconsistent structure of the legislator's basic decision expressed in Section 8b (1) and (2) KStG. In these paragraphs, in order to avoid cumulative effects in participation structures, the legislator ensures that profits generated are only taxed once for the generating corporation with corporation tax and only with income tax when distributed to natural persons as shareholders. Furthermore, the tax court considers the regulation to be incompatible with the requirement of equal tax burdens in the sense of equal taxation for equal performance. However, these reasons should not be sufficient to establish unconstitutionality.
Rather, the regulation can be objectively justified and therefore constitutionally permissible in order not to go beyond the requirements of the Parent-Subsidiary Directive, according to which an exemption from withholding tax on profits distributed by a subsidiary to its parent company is only required for a minimum shareholding of 10 %. Furthermore, according to the Hamburg tax court, a complete exemption from withholding tax irrespective of the shareholding would render the possibility of withholding tax deduction in accordance with Art. 10 Para. 2 OECD Model Tax Convention and corresponding double taxation agreements obsolete. The demarcation of taxation sovereignty from other states and the requirements of Art. 3 para. 1 of the German Basic Law give rise to a conflict of objectives to be resolved by the legislator, for which no clear solution has been provided. A referral to the Federal Constitutional Court for a review of constitutionality should therefore not be considered.
