The Challenge
Today, Germany is recognised as one of the key markets
for cross-border fund distribution. This is evidenced
by the fact that about 3,500 foreign regulated UCI
products, compared to 1,200 local investment funds,
are offered to German investors.
Importantly, since 2004, the same tax regime has
applied equally to domestic and foreign investment
funds but only provided the same tax reporting requirements
are satisfied. Not satisfying these reporting requirements
will in most cases result in a disadvantageous lump-sum
taxation at the investor level, which makes non compliant
funds very unattractive for German private and institutional
investors.
Registration with the German regulator is no longer
regarded as a condition to achieve the most favourable
tax status for German investors. Although public marketing
still requires undertaking a complex registration
process, private placement permits the same tax treatment
afforded registered funds. Thus, private placement
provides certain funds, e.g. Hedge Funds with easier
market access.
Overview on reporting requirements
To ensure that German investors benefit from the
most advantageous tax regime, the following requirements
(amongst others) need to be satisfied:
- Daily tax reporting (publication) related to
interest ("Interim Profit") and equity
("Aktiengewinn") income
- Annual tax reporting within four months of
the fund's financial year-end as well as on the
occasion of dividend distributions together with
a certificate by either a certified tax advisor
or an auditor stating that the tax reporting is
fully compliant with German rules.
This is even more challenging for foreign funds as
all profit and loss information to be considered within
the tax reporting process must be determined under
German rules, which often vary from local accounting
practice
Hedge Funds
After an overwhelming euphoria swept the German
market when it was opened to Hedge Funds in 2004,
actual figures on funds raised now demonstrate a level
of reluctance. Nevertheless, further clarification
and liberalisation of the tax and regulatory environment
has made it easier to access Hedge Funds, especially
for regulated entities, such as insurance companies.
Such professional investors are quite tax sensitive,
making full compliance with tax reporting rules a
key driver of their investment decision.
Private Equity and Real Estate
Does this concern my Private Equity or Real Estate
structure? Possibly yes! The German tax legislation
includes its own definition of funds, which are required
to comply with reporting requirements. Not only does
this apply to Hedge Funds and other alternative investment
schemes but also to Private Equity and Real Estate
funds.
The risk: Being unaware that your structure is required
to meet tax reporting and publication requirements.
Late identification of the requirements meaning that
the legal deadline passed will provide no further
possibilities to make your product compliant and your
investors are subject to the disadvantageous lump-sum
taxation.
PwC Solution
To support non-German based funds in complying with
these tax reporting provisions, and thus being an
attractive investment option for German investors,
PricewaterhouseCoopers provides a tax consulting and
compliance service offering through a dedicated hub
which aims to:
- Provide fund managers, promoters and administrators
with information on tax reporting requirements
and deadlines, including new developments as they
arise.
- Provide assistance in the preparation of the
tax reporting of the fund's financial year results
and upon dividend distributions
- Ensure the certification of the tax reporting.
- Ensure the filing of tax returns with the German
tax authorities, as required.
As these services require significant input from
a fund's administrator, they will be provided in a
tailored manner in order to meet the promoters' requirements
and to respect the administrator's operational capabilities.
Benefits for you
Based on our significant experience in this area,
we offer a comprehensive, bespoke and efficient tax
reporting service for funds looking to satisfy these
tax reporting obligations. Our approach involves close
cooperation with fund promoters and their administrator
operations. PwC Luxembourg has a dedicated tax team
consisting of 25 specialists working exclusively in
this area.
Apart from ensuring the satisfaction of the tax reporting
obligations, we understand that part of our role is
to help minimize the related administrative and operational
burden of all parties. This is supported by a close
cooperation with other PricewaterhouseCoopers experts
and competencies, e.g. with the fund's statutory audit
teams.
Why PricewaterhouseCoopers
Given our global market leadership position in the
Investment Management industry, we advise the vast
majority of major industry players, which welcome
our multi-competency client approach. This strength
also forms the basis for our German tax reporting
services. Multi competency teams, bringing together
all PwC knowledge on your products and led by recognised
senior experts with a long industry experience, guarantee
a seamless and cost efficient service approach
