Tax-exempt institutional investors (pension funds, pension schemes, foundations, etc.) are rightly constantly concerned about securing their tax-privileged status. An investment that would lead to the complete or even partial loss of tax exemption is understandably an absolute "no-go" from the perspective of these investors. At the same time, the low interest rates on the capital markets are currently forcing these investors in particular to invest in so-called alternative investments (infrastructure, private equity, renewable energies, etc.) in addition to investing in shares and bonds. However, such investment opportunities are typically set up in the legal form of closed partnerships (e.g. US limited partnerships), which often qualify as commercial partnerships from a German tax perspective.
Tax-exempt investors are therefore often faced with the question of whether such an investment is possible without incurring tax liability. In practice, the answer varies depending on the investor. For example, the risk of commercial infection is comparatively low for professional pension funds (see BFH of 9 February 2011, BStBl. II 2012, 601); for other investors (e.g. pension funds), the situation is quite different (see in detail Elser, Ausländische Private Equity Fonds - Steuerliche Aspekte aus Sicht des deutschen Anlegers, in: Wassermeyer et al, Personengesellschaften im Internationalen Steuerrecht, 2nd edition 2015, margin no. 9.82 ff).
In a letter dated 8 February 2016 (IV C 2 - S 2706/14/10001), the Federal Ministry of Finance declared a BFH ruling (I R 52/13 dated 25 March 2015), which is important in this context, to be applicable beyond the individual case for assessment periods up to 2008 (a separate BMF letter will be issued for tax years from 2009 onwards). The judgement concerns a legal entity under public law that has invested in a commercially active partnership. The BFH has confirmed that the investment constitutes a so-called taxable business of a commercial nature for the investor with the consequence that the investor is partially taxable on the profits of the partnership. Such a partial tax liability was still recognised by the BFH in the case of the participation of a non-profit GmbH in an asset-managing partnership that is only taxable within the meaning of Section 15 (3) no. 2 of the German Commercial Code. § Such a partial tax liability was denied by the BFH in the case of the participation of a non-profit GmbH in an asset-managing partnership that was only commercially "characterised" within the meaning of Section 15 para. 3 no. 2 EStG (BFH of 25 May 2011, BStBl. II 2011, 858).
In practice, this means that the question of the partial tax liability of tax-exempt investors with an interest in a commercial partnership will often depend on whether the partnership is originally commercially active or only "characterised" commercially (cf. on the distinction Elser in Beckmann/Scholtz/Vollmer, Investment-Handbuch, § 18 InvStG, margin no. 23 ff). The partial tax liability of income from a capital investment is typically not acceptable for tax-exempt investors. Much more serious, however, is the complete loss of tax exemption in the sense of a commercial "total infection" of the investor. Based on the current legal situation, the latter risk is limited to a few institutional investors (in particular pension funds and special funds). From the perspective of many institutional investors, investing in commercial partnerships will therefore continue to require the interposition of tax-shielding "blocker" structures.
Dr Thomas Elser is a tax consultant at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance.
