Germany Proposes New Tax Rules against Dividend Stripping

On February 24, 2016 the German Federal Government approved a legislative proposal  explicitly targeting dividend stripping transactions (so-called “cum/cum transactions”).  The proposal bemoans that non-resident taxpayers can avoid dividend taxation through the sale of equity securities to a German-resident taxpayer before the dividend record date and the simultaneous repurchase after the dividend record date (by way of forward transactions) or through securities lending.  On the buy side, taxable dividend income is offset by losses from the subsequent sale of the equity securities or through the lending fee.  This leads to a refund of the dividend withholding tax to the buyer.  The tax saving is split amongst seller and buyer.

The anti-dividend stripping proposal introduces a specific holding requirement for taxpayers claiming the credit or refund in the form of a 45-day holding test during which the taxpayer must be economically at risk with respect to the underlying equities.