Dividend imputation

The imputation is a corporate system in which the load is taken into account at the level of the corporation by a full deduction of corporation tax paid by the corporation. It was in Germany from 1977 to 2000 and was widely regarded as a systematic very clean system.

The corporation as a taxable entity

The taxation at the level of the corporation was considered in this system only as a preliminary survey, the final charge should take place according to the personal circumstances of the shareholder. This was due to the fact that, ultimately, only natural persons were viewed as carriers of tax efficiency.

Since, however, the tax registration of a company's profits could not wait until they were finally distributed ( for example, dividends), had to be ensured at the level of the corporation, a preliminary load. As a result, the undistributed profits (retained earnings ) are taxed at the level of the corporation, while the profits were taxed only at the level of the respective shareholder (for example, the shareholder ) through the imputation system.

Technical design of the imputation procedure

In the imputation system of corporation tax ( CIT ) was treated as a prepayment of income tax of the shareholder. The final taxation of the distributed profit was the shareholder after his personal circumstances instead:

• Poured the corporation their income is not sufficient, then the corporation tax should be nearly as high as the top rate of income tax. In 1977 the dividend rate of corporation tax 56%, as of 1990 only 50%, from 45% in 1994 and finally in 1999 and 2000 still 40%.
• Poured the corporation, however, the profit from that corporation tax was 10 % points ( previously in the last two application in 1999 and 2000 15 % - points ) is reduced to 30%. This 30 % corporate income tax of the shareholder could deduct from his income tax.
• When shareholders of undistributed profits of the corporation was then taxed ( after trade tax ) to his personal tax rate. The amount retained by the corporation or discharged as corporation tax dividend was credited as an income tax advance payment of income tax.
• The undistributed earnings of the corporation was then taxed in the result, as the shareholder would even earned the win.

Example:

The appropriate application of that system guaranteed to other corporations in respect of distributions that does not give rise to cumulative effects.

Applicable equity

Through the so-called structure calculation was ensured in Germany that actually true, the preload was taken into account at the level of the corporation on the distribution. These different groups of tax equity were formed ( usable equity) that have been grouped according to tax burden. After tax rate changes (for example from 45% to 40 % in 1999 ) had to be adjusted by the reconciliation usable equity.

The most important part of the amounts distributable equity were:

• Unmitigated -loaded equity shares: The proportion of the capital which was formed out of taxed profits, so the last 40% loaded part: The so-called EK 40 With a dividend payout, the scheme outlined above will apply.
• Unencumbered equity shares: The portion of the equity, was not subject to taxation in Germany: The so-called EK0, with sub-groups were distinguished, depending on whether upon distribution, a high smuggling on the level of taxation of the shareholder was ( at tax-free foreign income shares ), or whether the dividend completely tax-free remained ( in repayment of deposits ).

Change to the half -income method

The offset corporation tax in the domestic shareholders ensured that the company's profit in the domestic was only taxed once. From many sides has therefore been given to concerns that this procedure was not fit for Europe, as a cross-border credit transfer was not provided ( and would have been difficult to implement ). Neither could a German foreign corporation shareholder deduct if he has held shares in a foreign corporation, nor could a foreign shareholder in his home country credit the German corporation tax. In addition, the imputation system was due to its complexity as "international unemployable ".

The concern that these problems can lead to a European law of the imputation system has been confirmed, at least for the Finnish imputation system, on 7 September 2004, the ECJ the Finnish Anrechungssystem explained to European law ( Manninen decision), because a Finn, who at one Swedish society was involved, the foreign corporation in Finland was not allowed to deduct.

Germany has, inter alia, also why in 2001 converted to the half-income procedure (from 2009 withholding tax or partial income procedure).

Meanwhile, the incompatibility with Community law of retroactivity practice German tax authorities by the European Court of Justice in Case " Meilicke " ( C-292/04 ) has been determined. The tax authorities ie the accrued until the decision in Case Manninen procedures continue to apply the corporate tax imputation system to the old cases. The decision must be viewed critically in the legal literature, because the ECJ 's own Manninen decision a so-called " erga omnes ", ie to everyone applicable liability attributed, whereas it was previously thought to be safe, that the decisions of the ECJ grds. only "inter partes effect," ie liability between the parties to the dispute, plays ( Steinberg / Bark in EuZW 2007, 245).

Transition and Moratorium

Since during the imputation system of corporation tax paid had only the function of an advance income tax payment, it was not possible to transfer safely to transitional provisions. This would in fact be tantamount to expropriation, since the 40% load ( in the years 1977-2000 ) would have been definitely a shock. Therefore, there is a 18- year transition period for the corporations. With the end of the imputation system, a tax credit was found that is 1/ 6 of the former EK40. During the transitional period, the corporations for dividends each 1/6 of the distributions obtained repaid by the tax office until the tax credit is used up. This corresponds to a definitive burden of 30% ( instead of 25 % at current earnings ) of the former with 40 % corporate income tax. This scheme was also the reason for the negative or very low corporate tax revenues in the years after the migration, as companies first names high dividends and thus took their corporation tax credit claim.

By " law to reduce tax " of May 2003, the eligibility of tax credit between 11 April 2003 and 31 December 2005 was limited to 0 € beyond. After this " moratorium " the credit was limited annually to a fraction of the credit, the calculation would remove at a linear distribution to the final year in 2019 to this year. Before this amendment came into force, the current regulation of the corporate income tax credit was introduced with the SEStEG. This ensures that that will be paid during 2008 to 2017 in each one-tenth of the corporation tax credit of the corporation, be made even without that distributions ( § 37 para 5 the Corporation Tax Act ).