German Corporate Tax: payout of the tax credit modified

Implications: This analysis provides an inside view on new aspects of the German tax law that might be of interest even for taxpayers not resident in Germany. Although the corporate tax system has been changed from the tax credit method to the half-income system in 2000/2001, many corporations have tax credits resulting from the old system. These enterprises should be aware of the modification of section 37 (4) Corporate Tax Code, which allows the payout of the tax credit, starting 2008.

Analysis: Payout of historical corporate tax funds by ten annual instalments Many German corporations have corporate tax credits resulting from the former corporate tax system that granted corporate tax credit in case of distribution. The tax credit existing at the moment of the change of the system in 2000/2001 from the tax credit method to half-income system was “frozen”. It had not to be shown in the balance sheet and was not allowed for payout.

A modification of section 37 (4) Corporate Tax Code (Körperschaftsteuergesetz) from December 7, 2006 now allows the payout of the tax credit in ten annual instalments, starting 2008. Additional the full amount of credits, interests deducted, can be shown in the balance sheet December 31, 2006.