“Shipping Investor Cyprus” was a limited liability company domiciled in Cyprus. In the financial years 2010 and 2011 it received interest income from convertible bonds subject to German withholding tax. “Shipping Investor Cyprus” had no substance itself, but an associated company, also domiciled in Cyprus, had both offices and employees.
The dispute was whether “Shipping Investor Cyprus” was entitled to a refund of the German withholding tax and whether this should be determined under the old or the new version of Section 50d(3) of the German Income Tax Act (EStG).
The court of first instance concluded that “Shipping Investor Cyprus” claim for a refund was admissible because the old version of the provisions in Section 50d (3) EStG was contrary to European law. The tax authorities appealed this decision.
Judgement of the National Tax Court
The National Tax Court found that a general reference to the economic activity of another group company in the country of residence of the recipient of the payment was not sufficient to satisfy the substance requirement. According to the court, the lower court had not sufficiently examined whether the substance requirements of Section 50d (3) EStG – in its new version – were met. On this basis, the case was referred back to the lower court for a new hearing.