The German Act on the Adaption of Investment Fund Taxation in Connection with the AIFM Directive (the “AIFM Tax Act“) that did not pass the legislative process prior to the Federal Election in September now passed both chambers of the German Parliament (resolution of the German Bundestag on 28 November 2013 and approval of the German Federal Council on 29 November 2013). The new AIFM Tax Act is substantially similar to the resolution of the former German Bundestag of 16 May 2013. Only provisions regarding the later entry into force and the controversial pension asset pooling (not dealt with herein) have been modified.
1. Entry Into Force
The new AIFM Tax Act shall enter into force at the date following the date of publication of the act in the German Federal Law Gazette. It is uncertain when the act will be published in the German Federal Law Gazette. Typically this happens within the next few weeks after the approval of the German Federal Council. Other than suspected the new act will not enter into force retroactively (cf. our client info dated 4 September 2013).
2. Cut-Off Date
The date of entry into force is an important cut-off date in the following cases:
a. No Participation Exemption for Corporate-Type Non-Qualifying Investment Funds
The special tax regime applicable to corporate-type non-qualifying investment funds will enter into force as of this date. This is particularly important for Luxembourg SICAVs (S.A., S.C.A.). The German participation exemption for dividends and capital gains is no longer applicable (irrespective of any minimum ownership percentage and for all types of taxable investors) if the dividend payment or the disposition (as applicable) occurs on or after that date.
b. FCP, FCPR, Fondo Chiuso
Certain asset pools of a contractual type such as Luxembourg FCPs, French FCPRs or an Italian Fondo Chiuso will be deemed to be treated as corporate-type non-qualifying investment funds as of such date. The tax consequences in case an FCP that was treated as tax transparent so far are uncertain. It is possible that this issue will be addressed in a circular of the German Federal Ministry of finance.
c. Pre-Existing Investment Funds
Pre-existing investment funds that were established pursuant the abolished German Investment Funds Act are subject to a grandfathering provision, i.e. such investment funds will be treated as qualifying investment funds under the new law even if they do not comply with the newly introduced set of criteria for qualifying investment funds. However, the grandfathering is still limited until the end of the first business year that ends after 22 July 2016. This is identical to the provisions of the former AIFM Tax Act that did not pass the legislative process prior to the Federal Election in September. In case of a business year that matches the calendar year the grandfathering ends on 31 December 2016. After that date pre-existing investment funds have to comply with the newly introduced set of criteria for qualifying investment funds.
3. Special Cut-Off Date for Business Participations
There is a special cut-off date for business participations, in particular interests in closed-end funds organized as partnerships. Investment funds that acquired such business participations prior to 28 November 2013 may keep holding such business participation without interfering with their tax status even if the acquisition of such business participation were not eligible under the newly introduced criteria for qualifying investment funds.