In its judgement of 14 May 2019 (VIII R 31/16), the BFH ruled that the flat-rate calculation of investment fund income in accordance with Section 6 (1) InvStG, which can be averted by the taxpayer by providing evidence of the actual basis of taxation in accordance with Section 6 (2) InvStG, does not violate European law and should be compatible with the German Basic Law.
As already established by the lower court, the BFH also sees no possibility of determining the basis of taxation for non-transparent funds on the basis of the annual reports submitted by the plaintiff in accordance with Section 6 (2) sentence 1. The plaintiffs did not provide any information on the basis of taxation required for accumulating investment funds, in particular on the amount of income equivalent to distributions, but "only" determined the net income of the investments attributable to their respective fund units for the respective years in dispute according to the annual reports.
Thus, [at least in part]* the plea of the practice of Stiegler/Betz (in DStR issue 27/2017, p. 1463: Excessive taxation in the event of incomplete proof of actual income from non-transparent/black investment funds) did not take into account the BFH's considerations not to place excessive, impossible demands on the provision of such proof. This shows once again that the large number of cases that are currently still open may result in massive excessive taxation of taxpayers.
*In any case, the BFH (see II.2.b.cc) explicitly open whether it in the case of complete proof In addition to a professional certificate and an annual report valid at the end of the respective financial year, cumulative sales prospectuses, totals and balance lists from the respective fund accounting, reconciliation statements and an annex for the profit and loss carryforwards relating to the individual types of income must also be submitted in accordance with Section 6 (2) sentence 1 InvStG 2004 with regard to the declared tax bases (cf. the opinion of the tax authorities and see also BT-Drs. 18/8045, p. 130).
In its van Caster judgement, the ECJ ruled that taxpayers must be able to provide documents or information to prove the actual amount of their income. In doing so, the ECJ left it up to the tax authorities to determine the evidence that would enable proper and uniform taxation. The tax authorities and later the legislator then set high hurdles for the proof requirements with regard to the taxation of income of investors in non-transparent funds. The required evidence goes as far as a (semi-)transparent investment fund would otherwise provide. In practice, this is considered almost impracticable (cf. Stiegler/Betz DStR 2017, p. 1463, Meinert NWB 2015, P. 1328; Elser/Thiede NWB E+V 2015, P. 104; Höring GStB 2016, p. 47). On the one hand, it is very unlikely and, moreover, hardly enforceable that foreign fund companies that are not familiar with the German taxation regime will prepare and provide corresponding documents (e.g. tax reconciliation statement, totals and balances list from accounting) that would enable further proof of the actual income if audited fund annual reports are already available. Secondly, unlike large institutional investors, private investors generally have no possibility of influencing investment funds to disclose their income in accordance with German administrative requirements. Although this approach obviously raises no concerns under EU law (see ECJ van Caster), in practice it can lead to requirements that cannot be met. In this respect, the ECJ's well-meaning assumption in its grounds for judgement, according to which taxpayers can obtain all the necessary information from the foreign investment funds concerned, only applies in a few exceptional cases.
Contrary to the opinion of the BFH, it should be sufficient to provide evidence of the total income of the respective non-transparent fund without requiring a detailed breakdown of the respective income (interest, dividends, sales transactions, etc.). The total income reported in the fund annual reports typically includes all income realised from all types of income and thus also those that would be privileged under German investment tax law. This approach should also come close to the purpose-orientated understanding of the ECJ in the sense of an appropriate estimate in accordance with Section 162 AO (cf. Simonis/Faller/Oehlschlägl DB 2015, p. 2859 et seq.) That a calculation of the actual income based on the (audited) fund annual reports "as a basis for estimating an income level corresponding to the A result that comes close to reality" has already been recognised by the Düsseldorf Fiscal Court of the previous instance. A "result that comes close to reality" would be to measure the amount of distribution-equivalent income of an accumulating fund on the basis of the net result of the accumulating fund. Any write-downs on the fund's investments can be seen in the fund's annual report and could be corrected accordingly.
Your TAXGATE team will be happy to assist you in examining the prospects of success of previously pending proceedings.
Dr Tobias Stiegler is a tax consultant at TAXGATE, a law firm specialising in transactions, investments and tax compliance
