I. Meaning and purpose, scope of application of § 8b KStG

§ 8b KStG is intended to make participation structures that fall within the scope of the standard more competitive. Without the provision of § 8b KStG, the separate taxation of corporations and shareholders would result in double taxation of investment income and profits from the sale of investments in certain corporations or from transactions similar to sales.

II. Investment income

1. Tax exemption of investment income in accordance with § 8b para. 1 KStG

For corporations with unlimited and limited tax liability, § 8b para. 1 KStG results in a tax exemption of investment income within the meaning of § 20 para. 1 no. 1, 2, 9 and 10a German Income Tax Act (EStG) by reducing the profit outside the balance sheet.
In addition to open profit distributions, investment income also includes hidden profit distributions (HPD), provided these have not reduced the income of the providing corporation (§ 8b para. 1 sentence 2 KStG).

2. Fiction of non-deductible operating expenses in accordance with § 8b para. 5 KStG

§ 8b para. 1 KStG is supplemented by the provision of § 8b para. 5 KStG. Accordingly, 5 % of the remuneration within the meaning of § 8b para. 1 KStG is deemed to be non-deductible operating expenses.
This leads to the following result:

• Investment income in accordance with § 8b para. 1 KStG is generally 100 % tax-free. However, 5 % of these payments are considered non-deductible business expenses.
• In total, therefore, only 95 % of investment income is tax-free.
• At the level of the receiving corporation, this typically results in an income tax burden of approx. 1.6 % of the investment income (assessment basis 5 % x 15 % corporation tax (plus solidarity surcharge) + 5 % x trade tax, depending on the so-called assessment rate, e.g. 15 %, results in a total of approx. 1.6 %).

The fiction of § 8b para. 5 KStG applies irrespective of whether operating expenses have actually been incurred in connection with the investment income. However, actual operating expenses may be deducted in full, § 8b para. 5 sentence 2 KStG.

3. Tax liability of free float dividends in accordance with § 8b para. 4 KStG

However, § 8b para. 4 KStG restricts the material scope of application of § 8b para. 1 KStG with regard to dividends, as a minimum shareholding of “at least 10 %” is required (for trade tax purposes, a minimum shareholding of 15 % is required in accordance with § 9 no. 2a or no. 7 German Trade Tax Act (GewStG)). However, § 8b para. 4 KStG does not apply to capital gains within the meaning of § 8b para. 2 KStG.
§ 8b para. 4 KStG is generally based on the level of participation at the beginning of the calendar year, whereas the provisions of the GewStG are based on the (identical) beginning of the tax period. According to § 8b para. 4 sentence 6 KStG, however, the shareholding does not have to be at least 10% at the beginning of the calendar year if a shareholding of at least 10 % is acquired in the course of the calendar year. The legal consequence only applies for the “purposes of this paragraph”, i.e. for the application of § 8b para. 4 KStG and has no significance for § 9 no. 2a or no. 7 GewStG

4. Participation is held via a co-entrepreneurship

According to § 8 para. 1 sentence 1 KStG, the tax bases to be determined for a corporation as a co-entrepreneur at the level of a co-entrepreneurship within the meaning of § 15 para. 1 sentence 1 no. 2 EStG pursuant to § 179 para. 1, § 180 para. 1 sentence 1 no. 2 letter a German Fiscal Code (AO) are determined in accordance with the provisions of the EStG, taking into account the (special) provisions of the KStG that deviate from these in some cases. The latter also includes § 8b para. 1 p. 1 and 2 KStG, according to which taxable profit distributions within the meaning of § 8 para. 1 KStG in conjunction with § 15 para. 1 p. 1 no. 2, § 20 para. 1 no. 1 and para. 8 EStG, which are included in the co-entrepreneurial income from business operations attributable to the corporation as a co-entrepreneur, are not taken into account when determining the income of the corporation, provided that these payments have not reduced the income of the distributing holding company as open or hidden profit distributions.
A participation attributed to the co-entrepreneur within the meaning of § 8b para. 4 KStG is deemed to be a direct participation (§ 8b para. 4 sentence 5 KStG). Furthermore, for the purposes of § 8b para. 4 KStG as a whole, as already explained, the acquisition of a shareholding of at least 10% is deemed to have taken place at the beginning of the calendar year (§ 8b para. 4 sentence 6 KStG).

III. Individual questions on the acquisition of investments during the year

1. Several acquisitions below the participation threshold of 10 %

The lower court in the BFH ruling had already pointed out that the interpretation of the criterion used in § 8b para. 4 sentence 6 KStG of “acquisition(s) of a shareholding of at least 10 %” during the year has not yet been clarified by the highest court as to whether or under what conditions an acquisition of share packages from several sellers, each of which is below the aforementioned shareholding threshold, is covered by the (favorable) standard if the total of the acquisitions exceeds the aforementioned shareholding threshold.
On the one hand, it was argued that a corresponding case situation is generally covered, while an opposing view considers the requirements in this constellation not to be met because § 8b para. 4 sentence 6 KStG is not accessible to any teleological extension in view of the wording (this has also been the view of the tax authorities to date).

2. Benefit in any case in the case of so-called block acquisition (“uniform acquisition”)

The BFH left open the aforementioned question of interpretation regarding the general applicability of § 8b para. 4 sentence 6 KStG in the case of several (partial) acquisitions in view of the special features of the case in dispute, because in the case decided, the relevant participation threshold was reached through an “economically uniform acquisition transaction” from the perspective of the acquirer despite the fact that several sellers were involved in this transaction.
§ 8b para. 4 sentence 1 KStG refers to “the participation” and makes no distinction as to when and by whom the corresponding shares were acquired. The wording of § 8b para. 4 sentence 6 KStG therefore easily allows the question of the “acquisition of a shareholding of at least 10 %” to be assessed from the perspective of the acquirer and to be based on whether or not there is a single economic acquisition transaction.
In the opinion of the BFH, both the legislative history and the purpose of the provision indicate that the economically uniform acquisition of a shareholding of at least 10 % must be sufficient to fulfill the exemption rule of § 8b para. 4 sentence 6 KStG.
The background to the regulation was that without the special regulation for the initial acquisition or additional acquisition of a shareholding of at least 10 %, the free float regulation would always apply, with the consequence that, for example, dividends from the shareholding in the first year would always be treated as taxable or financing costs incurred in the year of acquisition could only be offset against later income from free float shareholdings. This consequence would have occurred even if a 100 % interest had been acquired during the year. With regard to the provision on hardship cases in § 8b para. 4 sentence 6 KStG, the legislator could not have had the idea that the acquisition could only be made by a seller.
The different treatment of income from shareholdings depending on the size of the shareholding (§ 8b para. 4 sentence 1 KStG) has been justified by the fact that a free float shareholding (less than 10 %) is regarded as a capital investment because often no permanent participation in the company is sought. Accordingly, the shareholder could not exercise any entrepreneurial influence on the decisions of the corporation due to the size of his shareholding, whereas an operational commitment on the part of the shareholder could generally be assumed for a shareholding of at least 10 %. From the relevant perspective of the acquirer and in view of the exceptional nature of § 8b para. 4 KStG, it makes no difference whether the qualifying investment is acquired by one seller or by several sellers, because the decisive factor must be that the acquisition of the investment of at least 10 % can or cannot exert an entrepreneurial influence on decisions at the corporation. However, this does not depend on the number of sellers, but solely on the shareholding acquired. According to the BFH, this must be sufficient in any case if the relevant shareholding of at least 10 % is acquired in a single economic transaction from the purchaser’s perspective, i.e. on the basis of a single acquisition decision in a causal and temporal context.