WHT-Process
Two Tax
Regimes
December 2015
Gift List 2018
Key Facts
German Investment Tax Act
The Reform in a Nutshell
Appendix
Legislative
Procedure
Asset & Wealth Management – Newsflash
Contacts/
About us
The Reform in
a Nutshell
www.pwc.de
The Reform in
a Nutshell
Legislative
Procedure
Legislative Process: Is the reform likely to be
implemented?
1 January 2018
Two Tax
Regimes
WHT-Process
There are still concerns amongst
parliamentary groups that the intended
reform will increase taxes, which would
not be in line with the coalition
agreement. However, it is fair to say that
the current ministerial draft bill takes into
account a couple of points being raised
by the various associations. In particular
the partial tax exemption amounts for
certain products and investor types have
been increased significantly and thus, has
made the reform more likely to be
implemented. The next steps of the
legislative process should be crucial. If
the cabinet resolves the draft bill, the
reform is very likely to pass the
parliament!
30 June 2016
The adopted draft
bill has to be signed
by the ministers,
Federal Chancellor
and Federal
President and finally
promulgated.
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How likely is the ministerial draft bill to
become law?
The adoption of the draft
bill requires the approval of
the lower and upper
houses. There can be up
to three readings in the
lower house.
Appendix
18 December 2015
The cabinet resolves the
ministerial draft bill. This
usually only happens if a
parliamentary majority
for the new bill is
expected in both houses.
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The Ministry of Finance
has issued a ministerial
draft bill. The public is
invited to provide
comments until
15 Jan 2016.
Current tax regime is still
applicable until 31 Dec 2017.
Final tax reporting is required
for this date. For funds whose
business year does not
correspond to a calendar year,
a short business year is
assumed. Furthermore a
fictitious redemption and
repurchase of fund shares
occurs at investor level.
Key Facts
Next steps of the legislative process
The Reform in
a Nutshell
Legislative
Procedure
Key Facts
Special Funds
Two Tax
Regimes
•One level playing field. German
source income taxable at 15%
•Administrative efforts on German
WHT (for more detailed information
see “WHT process” chart)
•Moderate annual lump sum taxation
(2015: 0.7% of NAV)
•For corporation-like structures, no CFC
reporting required
•Current grandfathering for investment
fund status extended until 31 Dec 2017
•Capital gain taxation on 1% German
equity holdings abolished
•Proof of equity fund status via legal
documents or financial statements
•Partial tax exemption at investor level to
avoid double taxation (30%/60%/80%)
Private Equity Funds
Real Estate Funds
•Proof of real estate fund status via legal
documents or financial statements
•Gains from domestic real estate always taxable.
10 year holding period abolished
•Partial grandfathering for assets bought 10 years
before resolution date of the new GITA
•60%/80% tax exemption at investor level to
mitigate double taxation
•Not in scope of new GITA, if
set up partnership-like
•General tax rules apply
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• Non-transparent vehicle
•Neither daily nor annual tax
reporting required
•Moderate lump sum taxation
for accumulating classes
•Grandfathering for “old” shares of retail
investors expires 1 Jan 2018. Change in
value since 1 Jan 2018 becomes taxable,
given tax free amount of 100,000 Euro
Appendix
Equity Funds
WHT-Process
Retail Funds
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Non-Special Funds
Domestic & Foreign Funds
Key Facts
Hedge, Infrastructure, Loan Funds
•No major changes, still regarded as
transparent vehicle
• Tax reporting still required
•Taxation of domestic income can be
relocated to investor
•Tax privilege on accumulated capital
gains generally remains
•More complex equity gain calculation
rules on the use of derivatives
•New daily reporting number
reflecting partial tax exemption on
non-transparent target funds
The Reform in
a Nutshell
Comparison of tax regimes
Scope of the new GITA
•Entity for collective investments which collects capital from a number of investors to invest it following a defined investment strategy
•No operating company outside the financial sector
•Funds with one investor as well as captive investment funds are also covered
•Certain tax exempt corporations without operating business and not covered by the German Capital Investment Code (e.g. SPFs)
Fund Tax Status
Non-Special Funds
•All funds which do not qualify as a special fund
Two Tax
Regimes
Special Funds
•Limited to 100 investors
•Generally only non-private investors (exceptions possible)
•Meets the remaining 9 investment fund criteria (comparable to the criteria of the
current regime)
•Qualifies for trade tax exemption
Key Facts
Legislative
Procedure
Two Tax Regimes
•German source income is taxable with a corporate tax rate of 15%
– mainly German dividends and rental income
– no capital gain taxation on 1% German equity holdings
•Exception: For domestic dividends and real estate income the taxation can be
relocated to investor level (transparency option)
•Not subject to trade tax per definition
•German source income is taxable with a corporate tax rate of 15%
– mainly German dividends and rental income
– no capital gain taxation on 1% German equity holdings
• Generally not subject to trade tax
WHT-Process
Taxation Fund Level
Reporting
•Annual investor tax reporting required
•Real Estate Profit and Equity Gain reporting still required
•New reporting number for partial tax exemption on target funds
•Proof of fund status (if not opting for transparency) and investor exemption
status must be submitted to depository banks
•Monitoring of compliance with special fund criteria
Transparent Tax Regime
•No (investor) tax reporting required
•Tax declaration for domestic rental income and certain capital gains
•Monitoring of equity and real estate thresholds
•Proof of fund status and investor exemption status must be submitted to
depository banks
Intransparent Tax Regime
Appendix
•Taxation upon distribution and redemption
•Accumulating classes: annual minimum taxation based on 70% of the yield of
public-sector bonds (2015: 0.99%); no minimum taxation for certain insurers
•Partial tax exemption for real estate (60%/80%), equity (30%/60%/80%) and
mixed funds (15%/30%/40%)
•Specific tax exemption for pension schemes
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•Taxation upon distribution and redemption
•Ordinary income taxable upon (deemed) distribution
•Capital gains realised at fund level only taxable upon distribution
•Underlying capital gains from equity remain (partially) tax exempt
•Foreign WHT creditable at investor level
•Underlying income from foreign real estate remains tax exempt
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Taxation Investor Level
Domestic dividend
2
DB1 pays 15% for taxable investor to FA. Taxation at
fund level is settled. No refund, no tax credit.
3
If “fund status” certificate is submitted late, overpaid
WHT can be claimed back within two years.
4
DB2 checks “equity fund status” (at least 51% equity
investments) to apply 30% tax exemption and pays 25%
WHT plus 5.5% solidarity surcharge on 70% of
investor‘s earnings to FA.
Depository Bank (DB1)
15
85
100
1
3
5
1
Finance Authority (FA)
Equity Fund
3
16
Payment of WHT
4
85
Depository Bank (DB2)
69
69
Taxable private investor
100
5
Depository Bank (DB2)
85
15
6
5
100
Tax-exempt investor
DB2 needs to provide participation quota and holding
period (minimum of 3 months) of the specific investor
to the fund for tax exemption at fund level.
Upon investor request DB2 needs to submit non-assess­
ment certificate to the fund which submits it to DB1.
Tax exempt investor
Fund has to prove legal and beneficial owner­ship
according to the „45-day rule“.
The Reform in
a Nutshell
Legislative
Procedure
For foreign tax exempt investors proof of comparability
is required to avoid taxation.
6
The fund has to pay the tax benefit directly to the
privileged investor.
Special Funds – Transparency Option
No taxation at fund level if fund declares to DB1 that a
tax certificate should be issued directly to the investor
(transparency option). DB1 pays non-reduced 26.375%
WHT directly on behalf of the investor.
Appendix
2 Payment of WHT
100
Contacts/
About us
100
Key Facts
Corporation
Two Tax
Regimes
1
Taxable investor
Fund provides legal documents to FA to request “fund
status” certificate. Fund provides DB1 with certificate.
DB1 applies reduced WHT rate of 15%.
WHT-Process
WHT process chart for a non-special fund
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WHT-Process: Is it that simple?
The Reform in
a Nutshell
3
No CFC rules applicable; moderate annual lump sum
tax only.
4
Partial tax exemption should not always compensate
missing tax treaty benefits; capital gains from German
real estate are always taxable for funds.
5
Equity thresholds difficult to monitor and partial tax
exemption harder to achieve; above comments on single
strategies apply.
6
For institutional investors: partial tax exemption should
not always compensate the abolition of Equity Gain
reporting.
7
No partial tax exemption to mitigate double taxation
effects and to compensate for Equity Gain abolition.
8
Benefits from transparency privileges.

?
2
Fixed Income


7
Mixed Fund (<25% equity)


6
Long/Short Equity

?
3
Hedge Funds (no L/S Equity)


4
Real Estate Fund
?
?
3
Infrastructure


5
Fund of Funds


8
Special Fund
( )

Legislative
Procedure
Only low double taxation effects, if any; annual lump
sum tax base generally (much) lower than DDI (High
Yield Bonds!).
Long Only Equity & Mixed Funds
Key Facts
2
6
Two Tax
Regimes
Partial tax exemption should over­compensate the
double taxation effect.
WHT-Process
1
1
Gift List 2018
1
Institutional
Investor
Appendix
Comment
Private
Investor
Contacts/
About us
Gift List 2018
The Reform in
a Nutshell
Legislative
Procedure
Appendix
Adjustments 2016
Grandfathering for Investment Funds
•Current grandfathering for investment
fund status extended until 31 Dec 2017
•In particular helpful for hedge funds,
loan funds and other non-UCITS products
Tax Exemption on Equity Gains
•Capital gains from sale of equities
remains 95% tax exempt in the
hands of corporate investors
Two Tax
Regimes
WHT-Process
Gift List 2018
•For EU-Funds tax transparent
taxation can be achieved even
after expiration of 4 month
deadline
•Cum-Cum trades will become less attractive
•To apply for a tax credit on domestic income
received after 31 Dec 2015 investor has to prove
legal and beneficial ownership of at least 45 days
for the period ex-date +/– 45 days
•This also applies to funds with respect to tax
benefits on German dividends
•German stocks need to be captured according to
the First In-First Out principle for documentation
purposes and the impact of corresponding hedging
positions needs to be quantified
•Given tax planning is on top of the political agenda
it might be worth to screen the past for disputable
transactions and to reassess their tax treatment
Appendix
Van Caster
Cum-Cum Trades
Contacts/
About us
•Annual tax reporting certificate needs to disclose
any indication for aggressive tax planning, tax
evasion and unjustified tax refunds
•Extended liability for tax advisors; administrative
fine up to 1 million euros
Key Facts
Aggressive Tax Planning
The Reform in
a Nutshell
Joachim Kayser
Tel: +49 69 9585-6758
[email protected]
Ralf Lindauer
Tel: +49 89 5790-6272
[email protected]
Dirk Stiefel
Tel: +49 69 9585-6709
[email protected]
Legislative
Procedure
Jürgen Kuhn
Tel: +49 69 9585-5779
[email protected]
© December 2015 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft.
All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, which is a member firm of
PricewaterhouseCoopers International Limited (PwCIL). Each member firm of PwCIL is a separate and independent legal entity.
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Appendix
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WHT-Process
Two Tax
Regimes
Markus Hammer
Tel: +49 69 9585-6259
[email protected]
Key Facts
Contacts