From 1 January 2018, investors will be confronted with a new taxation regime that is by no means neutral in terms of the choice of fund products and investment strategies. Starting points for avoiding tax disadvantages include the targeted use of the so-called partial exemptions for equity funds, mixed funds and property funds as part of product structuring.
The purpose of these partial exemptions is to mitigate double taxation at investor level in a standardised manner, as taxes will be levied both at fund level (for domestic income) and at investor level in future. The granting of partial exemptions at investor level does not depend on an actual tax burden at fund level. It depends solely on whether the fund qualifies as an equity, mixed or bond fund according to its documentation and investment strategy. This can be put to good use for a tax-optimised investment strategy.
Another important innovation is the introduction of a moderate accumulation tax in the form of an advance lump sum, based on the currently low base rate. This replaces the distribution-equivalent income, which was previously quite complex to calculate, and is to be derived from the redemption price of the fund unit at the beginning of the calendar year (recognised at 70%) multiplied by the basic interest rate. The legal basis for this was regulated with the amendment to the Investment Tax Reform Act as part of the so-called BEPS 1 Act of 20 December 2016 in Section 18 (4) InvStG (new version) without reference to the BewG.
Compared to the previous almost complete tax pass-through in accordance with the transparency principle on current interest and dividend income, the low advance lump sum generally favours the accumulating fund. In practice, a distribution policy will probably emerge that enables investors to at least bear the capital gains tax due on the advance lump sum without any liquidity disadvantages. This strategy is also convenient for the custodian banks, as they can access the assets booked directly in the custody account by the investor for capital gains tax purposes.
However, these already quite serious effects still appear quite manageable compared to the challenges of cross-border investment structures for large private assets and institutional investors. In addition to the investment tax regulations, the German Foreign Tax Act (AStG) and the double taxation agreements must also be taken into account; in addition, there are increasing influences from the European legal framework and existing and future multilateral agreements.
The AStG will no longer apply to investment funds from 2018. This is an improvement compared to the capital investment companies first introduced by the AIFM StAnpG on 24 December 2013, as these could generally fall under the scope of application of foreign tax law.
The tax-efficient structuring of national and cross-border investments, taking into account the new framework conditions from 2018, is at the centre of the WM Seminar on 27 January 2017 in Frankfurt am Main. In addition to focussing on fund design and structuring considerations in relation to the new InvStG, the seminar offers detailed information on future tax reporting and shows solutions for the timely implementation of the investment tax reform. Following this seminar, the speakers will be available to provide you with further information and can now also be contacted at any time for tax and legal questions at the new location in the TaunusTurm in Frankfurt am Main.
Dr Frank Thiede, tax consultant, is a specialist in investment tax law at the law firm TAXGATE
