In practice, the beneficial ownership test is most often applied in connection with dividend withholding taxes but may also be relevant in other areas of withholding tax relief. According to the German tax authorities, the substance test for the purposes of the anti-treaty or directive shopping rule is only passed insofar as the source of the relevant income – such as the shareholding in respect of which a dividend is received or the license for which royalties are received – is related to the recipient’s own economic activity. For these purposes, merely receiving dividends or royalties to pass them on to shareholders, for example, does not constitute an economic activity.

The same applies to activities insofar as they are not carried out with business operations appropriately set up for the respective business purpose. The taxpayer must evidence the existence of qualified personnel, business premises and technical means of communication.

The German Federal Fiscal Court (Bundesfinanzhof) has repeatedly stressed that, in determining whether beneficial ownership lies with the legal owner or another person, all circumstances of the individual case (Gesamtbild der tatsächlichen Verhältnisse im jeweiligen Einzelfall) have to be taken into account, but also indicated that the following criteria generally point towards the conclusion that the legal owner of securities is not their beneficial owner:

• Based on a civil law transaction, a person other than the legal owner has a legally protected claim for the acquisition of the relevant securities and cannot be deprived of this position without that person’s consent.
• A person other than the legal owner holds fundamental shareholder rights, such as voting rights and the right to receive dividends, associated with the relevant securities.
• A person other than the legal owner bears the economic risk associated with the movements (whether upwards or downwards) in the value of the relevant securities.

Where the recipient is not the beneficial owner of the relevant income, there is no general look-through to the actual beneficial owner, for example to apply the double tax treaty between Portugal and the beneficial owner’s jurisdiction. But the German tax authorities will assess on a standalone basis whether a foreign recipient should be regarded as a corporation or a partnership for German tax purposes. If it was to be regarded as a partnership, this would effectively result in a look-through, as a partnership cannot generally access a treaty.