If a corporation holds a stake in another corporation, §8b (1) and (2) KStG exempts 95 % of the income and profits accruing. Conversely, profit reductions and loan losses are only deductible to a limited extent. Let us therefore take a look at § 8b (3) sentence 3 to 5 KStG and see how the deduction ban has an effect in practice.
Corporations pay on average around 30% corporate and business tax, which is shared between federal states and municipalities. Only about 70% of the annual profit remains for the distribution. If another corporation is now a shareholder, the distributions there would be a renewed tax burden of around 30% – and so on. In order to avoid this, the legislature exempts the corresponding income by § 8b (1) sentence 1 and paragraph 2 sentence 1 KStG.
Conversely, however, certain restrictions also apply to profit reductions and loan losses. Decisive here are § 8b (3) sentences 3 to 5 KStG:
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.