In 2013, the tax exemption on free float dividends was abolished. Since then, the Bundesrat (German Federal Council) has tried several times to introduce the taxation on capital gains of free float shareholdings.

For instance, the discussion draft, dated July 21, 2015 of the German Federal Ministry of Finance on the reformation of the German investment taxation, included a corresponding change (Section 8b para. 4 German Corporate Income Tax Act).

However this change was not adopted by the ministerial draft, dated December 17, 2015. According to the German Federal Minister of Finance, capital gains of free float shareholdings will not be subject to tax for now. Instead, abusive tax structuring shall be tackled in another way, according to the ministerial draft. In the long term however, the taxation on capital gains of free float shareholdings will remain on the agenda.

The current exemption allows the entire refund of withholding tax, also for foreign recipients of German free float dividends: The sale of free float shares from a foreign shareholder to a domestic shareholder in combination with the short buy of the foreign shareholder from the domestic shareholder before the ex-date, result in a complete refund of the withholding tax in Germany (so called cum-cum transactions).

At least for listed shares, these structures shall be avoided by tightening the conditions for the refund of withholding tax on capital gains.

According to the draft, a refund will be only granted, if the taxpayer – inter alia – keeps a minimum vesting period (Section 36 para. 2a German Income Tax Act – Draft). Pursuant to the governmental draft, advised on February 25, 2016, this law shall be retroactively effective from January 1, 2016 onwards. It is reported, that the legislative process will be completed before summer.