In our Client Information dated 28 June 2013 we provided information that
negotiations on the German Act on the Adaption of Investment Fund
Taxation in Connection with the AIFM Directive (the
"AIFM Tax Act") had temporarily halted.
Now, the negotiations of the Conciliation Committee
(Vermittlungsausschuss) have ceased altogether.
Accordingly, it is highly unlikely that the legislative process
regarding the AIFM Tax Act can be completed prior to the Federal
Election on 22 September 2013.
The material consequences of the failure of the AIFM Tax Act are
1. Transitional Order of the German Federal Ministry of
The Financial Authorities introduced certain transitional rules
by way of a ministerial circular dated 18 July 2013
(BStBl. I 2013, p. 899). Under this circular the
abolished German Investment Funds Act (Investmentgesetz)
is deemed to remain in force solely for tax purposes after
21 July 2013.
2. Preexisting Regulated Investment Funds
Although it is uncertain whether this transitional rule is
consistent with the German law, we expect no adverse tax
consequences under the German Investment Funds Tax Act
(Investmentsteuergesetz) for preexisting regulated
investment funds and their investors.
3. Closed-End Funds
The tax treatment of closed-end funds such as private equity and
infrastructure funds that did not fall within the scope of the
abolished German Investment Funds Act so far should not be affected
by the failure of the legislative process regarding the AIFM Tax
4. FCP, FCPR, Fondo Chiuso
The classification of certain asset pools of a contractual type
such as Luxembourg FCPs, French FCPRs or an Italian Fondo Chiuso
for German tax purposes should remain unaffected. There should be
no risk of a taxable event due to a change in the classification
for German tax purposes (transparent vs. opaque) for the time
5. Participation Exemption
The so-called participation exemption (i.e. exemption for
dividends and capital gains pursuant to § 8b of the
German Corporate Income Tax Act) remains in effect (to the extent
applicable) with respect to income from shares in closed-end funds
organized as companies (e.g. Luxembourg S.A. SICAV-SIF).
6. Specialized Investment Funds
Specialized investment funds need not comply with the new set of
criteria for Qualifying Investment Funds proposed to be introduced
by the AIFM Tax Act for the time being. Rather, specialized
investment funds may continue to invest in closed-end funds, in
particular closed-end funds organized as partnerships, without
interfering with their tax status (subject to any applicable
III. Next Steps
1. New Legislative Procedure Necessary
Although it is theoretically possible that the legislative
process regarding the AIFM Tax Act may be completed prior to the
Federal Election on 22 September 2013, we do not expect that
this will happen. In particular, as of today there are no (extra)
sessions of the Conciliation Committee
(Vermittlungsausschuss) or the German Bundestag
Due to the prorogation between two legislative sessions, a
completely new legislative process would have to be launched after
the Federal Election. How quickly such new legislative process
could be initiated and what the content of a new draft bill would
be depends on the political situation after the Federal
2. Retroactive Effect?
The prorogation between two legislative sessions may have an
impact on the date of entry into force of a new act and possible
grandfathering rules. A retroactive entry into force or a cutoff
date for the grandfathering rules in the past may give rise to
constitutional implications due to recent decisions of the German
Given the uncertain situation, any ongoing projects should be
planned carefully and with sufficient flexibility to implement
changes that may become necessary due to future changes to the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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