The double burden of the distributions from corporations (AG fra 0351, GmbH, KGaA with corporation tax and income tax is avoided by the fact that the corporation tax paid by the corporation is offset against the income tax of the recipients of the distributions (Section 36 (2) No. 3 EStG ).
The credit also takes effect for shareholders whose credit amount exceeds the income tax liability for the entire income. This situation can arise with low-income recipients. In such a case, the income tax will be reimbursed. The crediting process takes place at the company level according to §§ 27 to 47 KStG:
• The elimination of the corporation tax burden on the distributed profits in the income taxation of the shareholders is done by offsetting them against the income tax liability in the form of an advance payment (Section 36 (2) No. 3 EStG).
• Außerdem wird die von der Körperschaft auf Gewinnausschüttung einbehaltene Capital gains tax (§§ 43, 43a, 36 Abs. 2 Nr. 2 EStG) angerechnet.
The crediting procedure was abolished through the amendment of the Corporate Income Tax Act by the so-called Tax Reduction Act with effect from 2001. Corporate income tax will no longer be offset against income tax. Transitional regulations must be observed.
The half-income method is to be applied to profit distributions. Dividend payments, etc. are no longer associated with a corporate tax credit. One speaks of half-income procedure, since only half of the dividends are subject to income tax, among other things, the other half is exempt from income tax (§ 3 No. 40 EStG).
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