Abbreviation | Longtext

para. | paragraph

AIF | Alternative investment funds

AO | Tax Code

Art. | Article

AStG | Foreign Tax Act

AuslInvG | Foreign Investment Law

BaFin | Federal Financial Supervisory Authority

BFH | Bundesfinanzhof

BMF | Federal Ministry of Finance

BStBl. | Bundessteuerblatt

BT | Bundestag

Ed. | Edition

EC | European Community

EStG | Income Tax Act

EU | European Union

EU UCITS | European undertakings for collective investment in transferable securities

FoStoG | Fund Location Act

GewStG | Business Tax Act

GG | Basic Law

i.S.d. | in the sense of

i.S.v. | in the sense of

i.V.m. | in conjunction with

InvStG | Investment Tax Act

KAGB | Investment Code

KAGG | Investment Company Act

KStG | Corporate Tax Act

KWG | Banking Act

lit. | littera

No | Number

UCITS | collective investment undertakings

REIT | Real Estate Investment Trust

S. | page

so-called

SPF | Société de Gestion de Patrimoine Familial

UBGG | Corporate investment companies

Comparison

for example | for example

plus | plus

Scope of tax exemption for tax-advantaged investors

Participation income according to § 6 para. 3 InvStG | Real estate income § 6 Abs. 4 InvStG | Other domestic income § 6 Abs. 5 InvStG

Investor meets the requirement of § 44a para. 7 p. 1 EStG

Investor holds shares under pension or basic pension contracts

Exemption does not apply to participation income | Domestic legal entity under public law

Exemption does not apply to participation income | Domestic corporations, associations of persons or wealth exempted from corporation tax

Corporate | Operating Investor (natural persons) | Private investors

equity funds | 80% | 60% | 30%

mixed funds | 40 % | 30 % | 15 %

Real estate funds | 60% | 60% | 60%

Foreign-

Real estate funds | 80% | 80% | 80%

The taxation of investment funds and their investors is subject to special laws. Many factors are important here. On the one hand, the income generated by investment funds and their investors should be subject to the general principles of taxation in Germany. In addition, taxation should be as bureaucratic as possible. On the other hand, influences resulting from the comparison with the taxation of investment funds abroad must also be taken into account. Therefore, in developing the laws on the taxation of investment funds and the profits that investors derive from them, legislators had to implement in a unique way a whole series of regulations of the general taxation system.

Already in the 18. The Dutch merchant Abraham van Ketwich collected money from investors, then invested this money in a portfolio of bonds, called this joint investment “Eendracht maakt macht” (German: Eintracht macht Stark) and thus set up the first known investment fund in history. [1]

In Germany, the idea of a joint facility only gained popularity from the 1950s. [2] Legal provisions on joint investment were first laid down in 1957 in the Act on Investment Companies (KAGG). This law also contained the first tax provisions aimed at placing investors who held shares in investment companies on an equal footing with direct investors. [3]

Investment companies are therefore not an achievement of today. Nevertheless, in the last decade, the German legislature has made significant changes in the taxation system of investment vehicles. For example, the taxation of investment funds in 2018, with the entry into force of the reform of the Investment Tax Act (InvStG), has undergone significant systemic changes. [4] In order to make investment tax law, among other things, simpler, more manageable and more design-safe, a new taxation system for public investment funds was introduced. [] 5]

In order to make it possible to tax investment funds, which are usually aimed at private investors, as far as possible without the involvement of investment funds, the new taxation system provides for a link to four key figures. These are the amount of the distribution, the value of the fund’s share at the end of the year, the value of the fund’s share at the beginning of the year and the fund category that are relevant for the exemption rates. [] 6]

In addition, after the reform, the new investment tax law refrains from transparent taxation, which has led to the determination of all tax bases in the past. [7] The semi-transparent taxation system applicable until the reform applies, via the option under § 30 InvStG, only to special investment funds in which only institutional investors may participate. Unlike in the case of transparent taxation for partnerships, in the case of semi-transparent taxation not all income is attributed to the investor, but only a compulsory tax base is defined and subject to taxation. [8] This type of taxation is to continue to apply for special investment funds after the reform of the Investment Tax Act according to § 30 InvStG. According to the explanatory memorandum, the difference in treatment arises from the fact that the number of investors in a special investment fund is limited to a maximum of 100 investors. As a result, the semi-transparent taxation system and thus taxation can be ensured in the determination procedure, despite complex tax regulations. [9]

The present work deals with the basic taxation regime for investment funds regulated in Chapter 1 and Chapter 2 of the InvStG according to §§ 6 to 24 InvStG and the taxation of investors of an investment fund according to §§ 16 – 22 InvStG. Only in order to delimit the material scope of application of the above regulations for investment funds, reference is made to the special regulations for special investment funds (§§ 25 – 33 InvStG) and their investors (§§ 34 – 51 InvStG), which are regulated in Chapter 3 InvStG.

The aim of the work is to explain the current tax regulations for investment funds and to analyse whether they are based on the general tax system. The starting point for this examination is the presentation of the taxation of domestic and foreign investment funds and their investors under German tax law.

Since the Investment Tax Act refers to the Investment Code and the applicability of the Investment Tax Act to investment funds is essentially dependent on whether it is an investment fund within the meaning of the Investment Code, the actual requirements for the existence of an investment fund according to the Investment Code should first be presented.

Since the taxation of investment funds can be carried out both according to the general income tax principles of taxation and according to the special provisions of the Investment Tax Act, the income tax and investment tax consequences at the investor and company level should be examined. The current taxation and the taxation in the event of termination and sale of the fund participation should also be mentioned.

For the analysis of the extent to which the Investment Tax Act is integrated into the general German taxation system, the principles of the German taxation system are first discussed. It will then be explained how the Investment Tax Act is integrated into the general taxation system. Then, with regard to the comments on the taxation of domestic and foreign investment funds and their investors, a critical analysis against the background of the German taxation system should follow. Finally, the conclusion should summarize the extent to which the general tax principles are adhered to and provide an outlook. Decisive for the aforementioned investigations should be exclusively the legal situation after the investment tax reform.

Since the legal methodology is in accordance with Art. 20 para 3 of the Basic Law (GG) according to the applicable law, the methods are bound by law and law and must be brought into conformity with it. [10] Consequently, the relevant legal standards are applied and interpreted for the scientific preparation and presentation of the tax assessment in the context of this work. [] 11]

The interpretation is made according to the general legal interpretation methodology. This includes the interpretation according to the wording (grammatical interpretation), according to the context of the regulation (systematic interpretation), according to the origin of history (historical interpretation) and the interpretation according to the meaning and purpose of the regulation (teleological interpretation). [12] The spoken law (judgment) does not apply generally and only between the parties involved in the court decision (inter partes). [13] Despite the lack of a binding prejudice, it can be assumed that judges are guided by the decisions of higher courts, as this ensures legal and equal treatment security. [14] For this reason, the work will also take into account completed and pending court decisions. The same applies to decrees and guidelines of the Federal Ministry of Finance. Although the administrative instructions only bind the lower tax authorities, since they offer legal certainty for the taxpayer in practice, they must also be taken into account in the context of the work. [] 15)

According to § 1 para. 1 InvStG, the Investment Tax Act applies to investment funds and their investors. For the definition according to § 2 Abs. 1 InvStG refer to the German Investment Code (KAGB). Deviating definitions in the InvStG are, however, to be applied primarily over the regulations in the KAGB (lex specialis). [16] Deviating definitions are not exclusively derived from § 2 Abs. 2 to 16 InvStG, but also from other provisions of the InvStG. If a legal term is undefined in the KAGB, then in principle the supervisory interpretation e.g. by interpretative letters from BaFin must not be used, but rather an independent tax interpretation must be made. [] 17)

Investors in investment funds are deemed to be investors in accordance with § 2 para. 10 InvStG the person to whom an investment share according to § 39abgabeordnung is assigned. The economic approach is decisive for tax purposes, so that the trustee is the owner in civil law in trust structures, but the investment assets are economically owned by the beneficiaries. [18] The general principles of attribution to the beneficial owner shall apply mutatis mutandis. If a partnership managing assets holds investments in a (special) investment fund, these are in accordance with § 39 para. 2 No. 2 of the Tax Code (AO) to be allocated proportionally to the shareholder and to be regarded as investors. [19] For holdings held by a co-entrepreneurship, the preceding statements do not apply. The co-entrepreneurship is regarded as a unit according to the decision of the Grand Senate of the BFH of 25.02.1991. [20] As a result, the co-entrepreneurship itself is considered an investor within the meaning of the Investment Tax Act. [] 21]

2. investment funds within the meaning of the KAGB

What is considered an investment fund results from § 1 para. 1 p. As an investment fund within the meaning of the Investment Tax Act, any investment asset that meets the requirements of § 1 para. 1 KAGB satisfies: ‘Investment assets are any collective investment undertaking which collects capital from a number of investors in order to invest it in accordance with a defined investment strategy for the benefit of those investors and which is not an operational entity outside the financial sector.’