Dividend stripping

The Hessen State Central Bank in Frankfurt issued in February 1998 a paper entitled Dem Dividendenstripping auf der Spur. This article summarizes the contents of that paper. The paper covers the following subject matter: 1. legislative countermeasures against dividend stripping, 2. the decision of the Kassel tax court, 3. reaction of market participants, 4. new techniques for dividend stripping and 5. stripping in connection with shares in non-German corporations. Germany is an imputation system whereby tax paid by a German company is imputed to the shareholders to whom the company pays dividends. Taxes are creditible against the income tax liability of a German shareholder receiving the dividend. Nonresident shareholders and certain types of resident shareholders are not eligible for these credits. However, it is possible to use certain arrangements to transfer the benefit of tax credits to nonresidents.