The court found that the German WHT levied at a rate of 26,375% (standard national rate) or 15% (under most applicable German DTAs) on foreign investment funds between 2004 and 2017 violated EU law, as comparable domestic investment funds were fully exempt under section 11 (1) of the former German Investment Tax Act (InvStG 2004). Accordingly, foreign funds are entitled to full refunds of WHT suffered during that period, plus interest.
A French FCP fund had suffered German WHT on dividend income in the years 2008–2013 (case I R 1/20). The plaintiff requested a refund of the WHT (reduced to 15% under the France–Germany DTA) plus interest, relying on the EU principle of free movement of capital. The German Federal Fiscal Court (BFH) found that the foreign FCP was in a legally and economically comparable position to a domestic German investment fund which would have been exempt from WHT under section 11 (1) sentence 2 of the Investment Tax Act 2004 (InvStG 2004). In a parallel case, a Luxembourg SICAV (case I R 2/20) suffered WHT on dividends in the years 2009–2013. The BFH applied the same reasoning and confirmed full entitlement to a refund.
In both rulings, the BFH also affirmed that EU law requires Member States not only to refund unlawfully collected tax, but also to compensate for the resulting loss of use of funds. This obligation stems from the effet utile principle and the case law of the CJEU, which requires effective legal protection of EU rights. The BFH therefore confirmed a direct entitlement to interest on refunded WHT, even though such interest is not expressly foreseen in German national tax law.
The start of the interest period depends on the relevant WHT year. For tax years 2010–2011, interest generally accrues from six months after the submission of the refund claim, reflecting a reasonable administrative period. For WHT years from 2012 onwards — when German domestic funds were entitled to relief at source — the BFH held that interest accrues already from the date of WHT deduction, to ensure equivalence of treatment.
However, the interest rate itself was not conclusively determined. The BFH noted that while section 238 of the German Fiscal Code (AO) provides for a 6% p.a. interest rate, section 233a AO — revised in light of a Federal Constitutional Court decision — now applies a reduced 1.8% rate for most cases as of 1 January 2019. Since the claimants in the BFH cases had initiated court proceedings before 2019, they were entitled to the 6% litigation interest under section 236 AO. But for other cases still pending in the administrative phase, it remains unclear whether the 6% or 1.8% rate will apply. The BFH explicitly left this question open, raising concerns that German tax authorities may apply the lower rate — a practice that could conflict with EU law’s principles of effectiveness and equivalence.
The BFH also addressed the question of whether the general four-year statute of limitations under section 169 (2) sentence 1 No. 2 AO could be suspended or deferred based on EU law. Specifically, the court explicitly rejected arguments in favour of applying a suspension mechanism (Anlaufhemmung) under section 170 (2) sentence 1 No. 1 AO for WHT years prior to 2012. The BFH reasoned that even domestic German investment funds were required, under the InvStG 2004 regime, to file their refund applications within a strict one-year deadline — i.e., before the expiry of the calendar year following dividend receipt. Since no relief-at-source mechanism was available to domestic investment funds at that time, foreign funds were not disadvantaged, and thus EU law did not require an exception. In practical terms, this means that the chances of success for reclaim periods before 2012 are very limited. For years from 2012 onwards, however, the situation may be different: the BFH did not take a clear position on whether a different treatment might be justified for these years, as domestic funds could by then obtain WHT relief at source. Accordingly, some legal uncertainty remains for post-2012 claims where the standard filing period has expired, potentially opening room for argument under EU law principles.
A further key aspect is that the two cases at hand were referred back to the Hessian Tax Court in order to assess the factual basis for the entitlement to the WHT reclaims at hand. This includes verifying original tax vouchers, the correct allocation of dividends, and the absence of disqualifying factors such as securities lending over the ex-date etc.
Accordingly, while the legal entitlement is now settled, claimants still face the burden of substantiating the underlying facts. This includes demonstrating legal and beneficial ownership, continuity in fund identity (despite restructurings or mergers), and full alignment with German procedural requirements. In many cases, this will require assembling decade-old documentation and responding to follow-up queries with precision and speed.
