Fund Taxation Alert 2018-02 | KPMG | LU
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Fund Taxation Alert 2018-02

Fund Taxation Alert 2018-02

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German Investment Tax Act 2018: new Circular published before Christmas

On 21 December 2018, the federal Central Tax office issued another circular (2017/1058518) regarding the new version of the German Investment Tax Act in force as of 1 January 2018. The circular came in response to questions raised by the German Federal Associations of investment companies and of the credit services sector. The circular inter alia provided the following clarifications:

  1. Regarding the computation of the equity ratio
    The tax authorities will not challenge situations in which an investment fund holding investments in another investment fund (a fund of funds) could qualify as equity fund during the transitional period from 1 January 2018 to 31 December 2018 (included), even when the equity ratio falls below the fixed ratio. This means that, for a transitional period of one year, the status of a fund of funds will not be put at risk due to drops in the equity ratio.

    Furthermore, the German Tax Authorities have said that, in cases of transfer of civil and economic ownership of securities in the sense of German law (e.g. in the case of security lending), these securities should not be taken into account for the calculation of the equity ratio of the respective investment fund that acts as lender of the securities. Rather, it should be the borrower that considers the securities when calculating his/her equity ratio.

    Notably, however, the circular points out that, in order to determine economic ownership, a case-by-case analysis needs to be conducted.


  2. Regarding the simplified electronic method for reduced withholding tax rates (withholding tax applicable to investment funds)
    The tax authorities will not challenge the rule that the electronic procedure must be followed for all withholding tax levied before 1 January 2021 on dividend and comparable payments. The procedure works as follows:

    1. The management company requests a status certificate for investment funds that the custodian needs.
    2. The reference numbers of the status certificates, and their validity, will be electronically transmitted to two central databases, one managed by WM and the other by OMGEO.
    3. The data will only be transmitted after the investment fund is launched.

    In carrying out the above-described procedure, management companies must also do the following:
    • for both databases (WM and OMGEO), indicate changes and deletions when they happen to the tax authorities
    • transmit a database extract of the status numbers and validations of status certificates to the responsible tax authority, when requested to do so
    • if using the simplified method, inform the competent tax office of this


  3. Regarding the refund procedure by the person liable to pay the tax (usually German custodian banks for foreign funds)
    The investment fund can obtain a refund of the levied withholding tax if it meets or exceeds 15%.

    If a (partially) tax-exempt investment fund (i.e. one that has charities, foundations, and/or pension funds as investors) proves that it should be (partially) tax-exempt, it can benefit from a refund by filing a claim with the German withholding agent (e.g. the German sub-custodian).

    Investors who can benefit from the exemption are entitled to be reimbursed by the investment fund according to § 12 Sec 1 InvStG 2018 (exemption amount)

    Tax refunds filed by the fund to obtain a reduced rate of 15% and those filed by the fund on behalf of its tax-exempt investors are independent of each other and can be claimed separately.

    For both refunds, as a precondition, proof of the fund’s status has to be provided via a status certificate. In addition, the refund mechanism for tax-exempt investors requires proof that the preconditions to benefit from the tax exemption are fulfilled:

    • An exemption certificate for charities and foundations must be provided.
    • The investor must have held the share units in the fund for at least 3 months and must have met the 45 day rule which allows the crediting of the withholding tax according to German law.
    • Proof must be provided of the percentage of tax-exempt investors that hold shares/units in the fund (including purchases and sales during a given year).

    Another refund mechanism involving the competent tax authorities does exist (§ 11 Sec 1). However, the present refund mechanism involving the German withholding agent takes precedence over the one to be filed with the German tax authorities.

    This means in practice that a tax refund must be requested from the custodian acting as withholding agent within 18 months of the payment of the taxable income. Only when the 18 months have elapsed can a tax refund be claimed from the competent tax office. A status certificate is required for a refund, even in cases of partial exemption for German investors.


  4. Regarding the transparency option
    If the transparency option has been executed already in 2018, but the decision to apply this option is reversed in 2019, the tax authorities will not draw negative consequences from this approach as long as the revocation is executed prior to the first payment of a German source dividend in 2019.

    Should the transparency option not have been executed yet, the decision to execute it can be taken at any future point in time.

    The question of whether an executed transparency option has a period of validity is still under discussion.

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.

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