The Federal Ministry of Finance (BMF) today published an initial BMF letter on the InvStG 2018 was published. The BMF circular answers questions in connection with the determination of the partial exemption rates for equity, mixed and real estate funds and provides a decoupling and advance publication of the partial exemption parts from the Draft letter from the end of March represent.

Compared to the draft (see also altii blog from 26/04/2017), the following clarifications should be emphasised in particular:

  • Derivatives/hedging transactionsDerivatives do not qualify as equity investments. However, hedging transactions are irrelevant with regard to the risk of changes in value from the equity investments held.
  • Fund of investment fundsIn order to determine the equity participation ratio, the umbrella investment fund may, in deviation from the wording of the law, either rely on any higher minimum ratios stipulated in the investment conditions of the target investment funds. In this case, it is sufficient if the fund of investment funds is obliged under its investment conditions to invest in target investment funds in such a way that the required equity participation ratio is achieved on an ongoing basis. Alternatively, the fund of investment funds can use the actual capital participation ratios published by the target investment funds on each valuation day to determine its capital participation ratio.
  • Relief until 31 December 2018Until 31 December 2018, it is not objectionable if the existence of the partial exemption requirements is not evident from the investment conditions. Instead, reliance can be placed on a self-declaration by the investment fund that at least 51% (equity funds) or 25% (mixed funds) is invested in equity investments on an ongoing basis.
  • SICAV-SAShares in corporate structured target (special) investment funds (e.g. SICAV-SA) are not equity investments.
  • No consideration of indirectly held equity investmentsEquity investments that are only held indirectly via partnerships (e.g. via PE funds) are not taken into account.

These statements by the BMF will have a significant impact on the structuring of fund products. The tax-efficient structuring of investment funds in compliance with the new framework conditions will take centre stage of the WM seminar on 29 June 2017 in Frankfurt am Main. In addition to focussing on fund design and structuring considerations in relation to the investment tax reform, the seminar offers detailed information on future tax reporting and shows solutions for the timely implementation of the investment tax reform.

Dr Thomas Elser is a tax consultant at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance.

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