With the so-called box privilege, a comprehensive exemption from profit distributions applies. The legislator exempts dividends and other payments from corporation and business tax if the recipient of the payments has at least 10% or 15% of the company paying out. The box privilege is thus one of the core assets and advantages of holding structures.

First basic idea: avoiding double taxation

Companies are often involved in (other) partnerships and corporations. In practice, so-called holding structures are mainly common. The holding company, usually in the legal form of the GmbH, holds shares in other companies. These subsidiaries are usually also structured as a corporation (GmbH, UG, AG) and thus enable the holding company to claim the box privilege.

Without special benefits, there would now be multiple taxation of profit distributions of the subsidiary to the parent company. Profits distributed by corporations to their shareholders (partners) may not reduce the tax profits of the distributing company (section 8(3), first sentence, KStG). Let’s look at this on the basis of a three-level social structure:

As a holding company, A-GmbH holds 100% of the shares in B-GmbH. This in turn is 100% owned by C-GmbH. At the level of C-GmbH, a profit of EUR 100,000 will be distributed to A-GmbH via B-GmbH.

C-GmbH initially pays 30% corporate and business tax on the annual profit of EUR 100,000. The distribution to B-GmbH remains EUR 70,000, which would also be charged with 30% as operating revenue at B. Only EUR 49,000 remained for a distribution to A-GmbH, at the level of which there would again be a tax of 30%. From the annual profit of C-GmbH, only EUR 34,300 remained.

With the so-called box privilege, the legislature avoids these negative and sometimes even unconstitutional tax effects. It is based on the EU parent-subsidiary directive, which is intended to prevent double taxation of profit distributions of companies participating in each other. The legislator has implemented the directive in particular in § 8b KStG and § 9 GewStG.

2. The box privilege in individual tax laws

The German legislature has transferred the box privilege imposed by the parent-daughter directive into national law. The privilege applies here to all those companies in which, without a corresponding exemption, there would be double or other multiple taxation of profit distributions and sales proceeds. In the case of multi-stage investments, the box privilege basically applies at every level, otherwise it would sometimes be ineffective. V

2.1 Exemption of profit distributions according to § 8b (1) KStG

According to § 8b (1) sentence 1 KStG, the following emoluments remain out of recognition when determining the income of a corporation: