The new German Investment Fund Tax Act enters into force as of 1 January 2018.

In order to identify your funds as investment funds for German tax purposes (so as to benefit from a lower tax rate on dividend income) it is important that your funds apply for a so-called status certification (Statusbescheinigung).

We would like to inform you that the Federal Ministry of Finance (BMF) has now provided the application form and further instructions on the application process for obtaining this status certification.

Please note that the application needs to be filed in 2017 in order to qualify as an investment fund as of 1 January 2018 and to make your funds ready for the new rules!

KPMG has set up a task force specifically focusing on German fund taxation as well as the German Investment Fund Tax Act reform. This is to support you with current transition questions and challenges you may be facing in regard to the Tax Reform Act and to help you ease your current tax obligations.

Below you will find a brief summary of your rights and responsibilities. Unless you appoint a representative pursuant to section 3 (4) InvStG in the version as of 2018 (i.e. your tasks are not outsourced), it is your legal responsibility to perform the following tasks:

• Application for a status certificate in accordance with section 7 InvStG (to reduce German withholding taxes on dividends to 15%). This needs to be submitted every three years.
• Reporting of a daily equity ratio as well as distribution and static data to WM Daten Service.
• Calculation and confirmation of partial exemption ratios as well as providing evidence of all necessary tax bases to all investors (in particular the notification regarding partial exemptions to WM).
  • Special liability rules for incorrect calculations/proof of evidence are not foreseen within the InvStG. Please note that general German criminal provisions are applicable in cases of negligence.
    
• Application for tax exemptions for tax-exempt investors with German-sourced income (to reduce German withholding taxes on dividends to 0%).
  • The applications need to be filed in 2017 in order to be considered for exemption in the subsequent year.
  • Comprehensive liability rules are in place for wrongly reimbursed / not levied taxes [section 14 (5) and (6) InvStG].
• Ongoing monitoring regarding managed investment funds and whether they have earned assessable income. If they have, a corporate income tax return needs to be filed. It is also recommended to have an ongoing monitoring in place that captures legislative changes and changes regarding administrative practices in Germany.
  • The general liability rules are in place, as no special liability rules are outlined in the InvStG (i.e. tax evasion is prosecuted if taxes are not assessed).
    
    

Going forward, the responsible tax authority will be in charge of reviewing all tax circumstances [section 5 (1) InvStG]. Based on paragraph 2 of this section, the verification concerns the following points:

1. the investment fund’s tax circumstances
2. requirements for being taxed as a Special Investment Fund
3. investors’ tax bases
   
   

In conjunction with the aforementioned points, sections 194 to 203 of the tax code (Abgabenordnung) that relate to the execution of an external audit are also applicable.

The term responsible tax authority refers to the local authority in the context of where the assets of the investment funds are located. If more than one tax authority is responsible, a local tax authority is appointed based on the location of the most valuable assets of the investment funds. In all other cases the German Federal Central Tax Office is responsible.
 

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.