The Federal Ministry of Finance (BMF) issued a long-awaited decree on 8 August 2009 on its interpretation of the Investment Tax Act (Investmentsteuergesetz, GITA). The decree contains several new interpretations, requirements and simplifications for taxpayers falling with the scope of the GITA. One of the most important simplifications is that the BMF will accept the opinion of the Federal Financial Supervisory Authority regarding the qualification of foreign assets as foreign investment shares / units (Decree of the BaFin dated 22 December 2008 – 14/2008). Changes also are made to the treatment of multi-level structures, the offsetting of losses, the tax consequences of the sale of investment shares / units for private individuals, the treatment of real estate profits and additional requirements are imposed with respect to data publication.
In the case of multi-level structures, it is generally no longer necessary to look through a partnership or corporation. Sufficient risk diversification will be accepted to the extent shares are held in a Private Placement Partnership (PPP) or real estate company or in certain other investment funds or equity participations (i.e. eligible assets under section 4(2) of the GITA). The offsetting of losses at the level of an investment fund has been controversial since the introduction of the German flat-rate tax because the law stipulates that negative income of a fund must be offset against positive income of the same kind. In theory, to guarantee an appropriate loss offset, different categories of losses would have to be established to reflect the different tax consequences for individual and institutional investors. However, the tax authorities did not consider those tax consequences and pooled the loss offsetting categories for all groups of investors of public investment funds. The decree provides for 10 different loss categories without any possibility of vertical loss offsetting in the future.
In addition, if a private investor sells investment shares / units that were purchased after 31 December 2008, the capital gains or losses from the sale are taxable according to GITA section 5(8). The calculation method is described in detail in appendix 6 of the draft decree and single explanations of the calculation can be found in no. 169a. It should be noted that according to no. 16a, distributions in kind generally will reduce the acquisition costs of the investor. In the case of a private investor, the reduction of the acquisition costs can be substituted by the addition of a distribution in kind in the case of a redemption or sale. As a result, care needs to be taken that a distribution in kind is not considered twice.
For real estate funds, the tax authorities have confirmed that real estate profits at the fund level must be distinguished from real estate profits at the investor level. The latter is calculated based on the holding period of the investor. To calculate the real estate gains at the investor level in the case the investment shares / units purchased before 1 January 2004, the real estate gains at the fund level at the time of the purchase corresponds to the real estate gains at the fund level calculated by the investment company for the first time based on the redemption price at first calculation. Alternatively, the investor is allowed to calculate a fictitious real estate gain at the fund level corresponding to the date of the purchase provided that relevant evidence can be provided.
Finally, in future the distribution resolution must be published in the German Electronic Federal Gazette, along with the German Tax Reporting Figures. This should ensure the correct allocation of the income at the level of investors who have to prepare balance sheets.
