Relief from capital gains tax

On 17 March 2025, the Federal Central Tax Office (BZSt) published a new information sheet in coordination with the Federal Ministry of Finance (BMF) and on 31 March 2025 an updated questionnaire on the entitlement to relief from capital gains tax in accordance with Section 50d (3) of the German Income Tax Act (EStG). This provision was last revised by the Deduction Tax Relief Modernisation Act (AbzStEntModG) and serves as a national anti-treaty shopping clause. The aim of the provision is to prevent abusive tax arrangements in which taxpayers receive unjustified tax relief, for example by using foreign companies as intermediaries.

The provision of Section 50d (3) EStG 

Profit distributions by a German corporation are subject to withholding tax of 26.375% (corporation tax plus solidarity surcharge) at source (so-called withholding tax). Both domestic and foreign shareholders have the option of obtaining (partial) relief from withholding tax. Foreign shareholders of a domestic corporation can claim relief from capital gains tax by way of exemption or refund. This claim can be based on a double taxation agreement (DTA), the Parent-Subsidiary Directive (Section 43b EStG) or Section 44a (9) EStG. Irrespective of the entitlement to relief, capital gains tax is first withheld, declared and paid and then the possible relief is granted. According to Section 50d (3) EStG, such a relief claim can in turn be restricted or completely denied if:  

• the persons holding an interest in the foreign shareholder would not also be entitled to relief in the event of a hypothetical direct withdrawal (personal entitlement to relief) or  
• the participation in the domestic corporation is not substantially related to an economic activity of the foreign company that goes beyond pure asset management (substantive right to relief).  

If neither the personal nor the factual entitlement to relief exists, an abuse of structuring is legally presumed. This presumption can be rebutted if the shareholder proves that its interposition does not primarily serve tax advantages (motive test). The presumption of abuse is also deemed to be rebutted if the main class of shares in the foreign shareholder is regularly traded on a recognised stock exchange (so-called stock exchange clause).

The most important new features of the leaflet dated 17 March 

Relaxation of the view on personal discharge authorisation

The information sheet makes it much easier to qualify for personal tax relief (Section 50d (3) sentence 1 no. 1 EStG). Until now, the BZSt has based its decision on the fact that the persons directly or indirectly involved are resident in the same country as the shareholder ("this entitlement"). According to the new view of the BZSt, the decisive factor is that these persons would have an identical or higher hypothetical claim to relief. If the indirectly involved persons have a lower claim to relief, the applicant's claim to relief is restricted accordingly.
This represents a significant relief, as previously there was a risk of the application being rejected in its entirety if the hypothetical relief claim was not based on the same legal basis (e.g. Section 43b EStG). This change is particularly relevant for shareholders resident in the EU whose shareholders are in turn resident outside the EU, as they could not invoke the benefits of the Parent-Subsidiary Directive. The amendment removes the requirement for the same legal basis for the relief claim, which should significantly reduce the risk of a complete denial of the claim in practice.

Consistently high requirements for factual discharge authorisation

The criteria for substantive relief authorisation (Section 50d (3) sentence 1 no. 2 EStG) remain essentially unchanged. Applicants must continue to prove that they actively participate in commercial transactions and maintain a business operation that is appropriately equipped for this activity. Evidence includes qualified staff, business premises and technical means of communication. A purely asset-managing activity is not sufficient to claim relief. Specifically, "participation in general economic transactions that goes beyond the scope of managing one's own or third-party assets" is required. The questionnaire on Section 50d (3) EStG was supplemented by an annex on investment management. This sets out the BZSt's view on the categorisation of holding companies and expressly requests applicants to explain in detail the reasons for their categorisation as "active investment management". 

The AbzStEntModG removed "participation in general economic transactions" as a criterion from the wording of the law. However, the BZSt information sheet indicates that it is sticking to the previous interpretation and that this criterion continues to play a role in administrative practice. 

No new findings in relation to the motive test

The information sheet does not provide any new findings with regard to the motive test. Furthermore, a comprehensive examination of the tax and non-tax reasons is planned.

Easier rebuttal of the presumption of abuse when applying the stock exchange clause

According to the previous opinion of the BZSt, the stock exchange clause could only be applied at the downstream participation level if a hypothetical relief claim was based on the same legal basis (e.g. the same DTA). Here, too, the information sheet provides relief. The stock exchange clause should now also apply in the case of an identical or higher relief claim at the downstream participation level if the relief claim is based on a different legal basis. However, this presupposes that in the case of an indirect shareholding, all intermediary companies would also have an identical or higher claim to relief compared to the applicant.

Conclusion

The new information sheet and the BZSt's questionnaire on Section 50d (3) EStG, which has been adapted accordingly, provide significant relief from German capital gains tax. The easing of the personal relief entitlement and the stock exchange clause are particularly noteworthy. A key advantage is that a hypothetical entitlement to relief is sufficient for indirect shareholders, even if this is not based on the same legal basis.

At the same time, the BZSt's requirements for substantive relief authorisation remain strict and fall short of the requirements under EU law. The requirements for an active business activity that goes beyond a purely asset-managing activity remain in place. This continues to represent a considerable hurdle for applicants whose economic activity is limited to asset management.

Although the leaflet is not legally binding, it provides valuable information on the interpretation of Section 50d (3) EStG by the BZSt. Applicants should therefore check whether previously rejected applications for relief can be resubmitted in light of the new interpretation. It would also have been desirable to update the information sheet on withholding tax in accordance with Section 50a EStG. 

The extension of the validity of exemption certificates issued from three to five years is also intended to contribute to more efficient processing of applications and reduce processing times.