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Alternative Market Briefing

European Court of Justice says German tax legislation disadvantageous to non-German investment funds

Monday, October 13, 2014

Komfie Manalo, Opalesque Asia:

The European Court of Justice (ECJ) has called on the German government to amend its Investment Tax Act whose lump sum taxation was found to be disadvantageous to non-German investment funds. The Court added that investors have a right to fair taxation.

In a report, the PwC said that upon the request of the Finance Court Duesseldorf the ECJ has ruled that the lump sum taxation of investors in so-called non-transparent investment funds limits the free movement of capital.

According to PwC, the ECJ sees a veiled limitation of the principle of free movement of capital. Even though the lump sum taxation regulation applies to German as well as non-German investment funds, the transparency requirements set out in national law are only regularly fulfilled by German investment funds according to the ECJ, while in most cases the lump sum tax regime is applied to non-German investment funds.

As a consequence, German investors in non-German investment funds should be able to independently transmit their tax-relevant information to the financial authorities in those cases where transparency reporting has not been performed. The exact content, format as well as the level of precision required of this information has been left to be decided by the financial authorities.

Consequences of ruling not yet predictable

The report said, "What consequences this ruling will have ......................

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