German Investment Tax Act – Minimum Asset Ratio Compliance Exception has been saved
German Investment Tax Act – Minimum Asset Ratio Compliance Exception
17 April 2020
Operational Tax News
With regard to the German Investment Tax Act, the German Ministry of Finance has issued on 9th of April 2020 a communication in order to provide for the current difficult economic situation. The communication concerns the minimum asset ratios applicable for qualification as equity or mixed fund and stipulates that passive breaches between 1st of March 2020 and 30th of April 2020 in general will not be considered as severe breaches and will not be taken into account for the 20-business-days-limit.
Under the new German Investment Tax Act (GITA 2018) German investors can profit from partial tax exemptions on income received from investment funds that qualify as equity funds respectively mixed funds in the sense of sec 2 para 6,7 GITA 2018. Precondition for the qualification as equity respectively mixed fund is the implementation and continuous maintenance of respective minimum investments (“minimum ratios”) in equity participations in the sense of sec 2 para 8 GITA 2018.
Non-compliance with the respective minimum ratio might result in the loss of the status as equity or mixed fund and therefore impact the tax situation of German investors.
Nevertheless, minor breaches will not directly trigger a status change. Passive breaches, for example short-term breaches due to market developments generally classify as minor breaches, provided the investment fund takes immediate and appropriate action to restore compliancy.
Under the current rules in general no severe breach will be assumed if the investment fund does not fall below the respective minimum ratio for up to 20 (separate or consecutive) business days during the fund’s business year (20-business-days-limit).
The current economic situation caused by the COVID-19 pandemic might impact investment funds with regard to maintaining the minimum investment in equity participations as well as with regard to taking appropriate actions to immediately restore compliancy in case a passive breach occurs.
In order to provide for the COVID-19 related exceptional circumstances the German Ministry of Finance has issued a communication stipulating that passive breaches between 1st of March 2020 and 30th of April 2020 in general will not be considered as severe breaches and will not be taken into account for the 20-business-days-limit.
The communication also stipulates a similar exception for special investment funds to the extent that passive breaches between 1st of March 2020 and 30th of April 2020 in general will not be considered as violation of the investment rules acc to sec 26 GITA.