On May 21, 2019, the Federal Ministry of Finance published a Circular on sec. 1 - 24, sec. 50 and sec. 56 of the German Investment Tax Act (BMF May 21, 2019, BStBl. I 2019, 527). With this publication, the administrative regulations on investment funds (chapter 2), the transitional regulations and the tax withholding regulations for special investment funds (chapter 3) are now available in their final version (for the time being). The tax authorities will apply these rules to all open cases from 2018 onwards. For matters covered by these regulations, previously published BMF Circulars and written replies to associations are thus obsolete. We would like to inform you about some of those regulations that seem of particular importance.

The regulations on special investment funds (chapter 3) as outlined in the third draft of the Circular (dated June 15, 2018), however, are currently still being revised or amended and will probably not be published in their final version until the beginning of 2020.

The UK First-Tier Tribunal Tax Chamber found that a German pension scheme was eligible for an income tax exemption in the UK even though it could not register as a public service pension scheme in the UK, because it had not been established by a UK legislative body. The law was held to be in breach of the EU principle of the freedom of movement of capital and is thus unlawful. The German pension scheme is therefore entitled to tax exemption without registration in the UK.

Open-ended real estate funds, which experienced liquidity difficulties in the wake of the financial market crisis and ultimately had to be wound up as a result, have permanently stopped issuing and redeeming their shares. They are therefore referred to as closed open-ended real estate funds. The German Federal Fiscal Court has now decided that the partial value of shares in such closed open-ended real estate funds corresponds to the exchange price at which they are traded (BFH 13^th February 2019, XI R 41/17). The value of such shares is expected to be permanently impaired if the exchange price (secondary market value) fell below the book values on the balance sheet date and the price loss exceeds the de minimis limit of 5%.

In our opinion, in the case of partial write-downs for these shares to the secondary market value, the investor's real estate gain must also be adjusted accordingly. However, due to the lack of ripeness for adjudication, the German Federal Fiscal Court did not decide this question and has instead referred it back to the lower courts.