Withholding tax refund for EU parent companies with subsidiaries in liquidation

In its judgment VIII R 8/24 of 3 March 2026, the BFH held that the exclusion clause in Section 43b(1) sentence 4 of the German Income Tax Act (EStG) does not apply to profit distributions made by a domestic corporate subsidiary to its EU parent company after the start of liquidation, provided that the distributed profits were generated before the liquidation proceedings were opened. Withholding tax retained on such distributions must therefore be refunded in full upon application.

Facts of the case

A Luxembourg S.A. was the sole shareholder of a German GmbH. The GmbH was dissolved as of 31 December 2010 and subsequently entered liquidation. In November 2013, the GmbH distributed profits to the parent company that had been generated during the active business period before dissolution. The Federal Central Tax Office (BZSt) refused to refund the withholding tax in full, arguing that Section 43b(1) sentence 4 EStG excludes relief for distributions “in connection with liquidation”.

BFH decision

The BFH dismissed the BZSt’s appeal as unfounded and confirmed the claimant’s entitlement to a refund. The key considerations were as follows:

1. Classification as a profit distribution under Section 20(1) no. 1 EStG: The distribution of profits generated before dissolution falls under Section 20(1) no. 1 EStG even if the resolution and payment are made after the dissolution date (and not under Section 20(1) no. 2 EStG).
2. Interpretation of Section 43b(1) sentence 4 EStG in conformity with EU law: Article 5 of the Parent-Subsidiary Directive (PSD) requires an exemption from withholding tax for profit distributions to EU parent companies. Unlike Article 4(1) PSD, Article 5 PSD does not contain any exclusion clause for distributions made in connection with liquidation. Section 43b(1) sentence 4 EStG must therefore be interpreted in line with the Directive to mean that profits generated during the subsidiary’s active business period are not excluded from relief.
3. Systematic interpretation of Section 11 KStG: The national tax system also allocates such distributions to the previous years and not to the winding-up phase (Section 11(4) sentence 3 KStG).

Open questions

The BFH did not decide whether Article 5 PSD also requires an exemption from withholding tax for the distribution of liquidation gains (Section 20(1) no. 2 EStG). The BFH indicates that this position may well be defensible.

Practical relevance

The judgment is highly relevant for cross-border group structures with subsidiaries in liquidation. EU parent companies receiving distributions after the start of liquidation of profits generated during the subsidiary’s active business period are entitled to a full refund of withholding tax under Section 43b(1) sentence 1 in conjunction with Section 50d(1) EStG. In comparable cases, a refund should be applied for with the BZSt or objections should be filed against negative decisions.

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