The German 2022 Annual Tax Act will again result in changes for companies that are neither domiciled in Germany nor in the EU if they wish to repay capital to their shareholders in a tax-neutral manner. While the German Federal Ministry of Finance (Bundesfinanzministerium, or “BMF”) had just acknowledged the long-standing case law of the German Federal Fiscal Court (Bundesfinanzhof) in its Circular dated April 21, 2022, stating that these so-called third-country (non-EU) capital companies can also repay capital reserves and nominal capital in a tax-neutral manner, and under which conditions this is accepted by the German tax administration, the amendment to the law again gives rise to new questions for the legal practitioner. Particularly for investors in alternative investment funds, the now established statutory application requirement represents a practical hurdle that is difficult to overcome.

After almost four years of waiting, the US Treasury Department and the IRS have finally issued Final Regulations with regard to “qualified foreign pension funds” (“QFPF”) and their tax treatment under US tax laws. The Final Regulations provide welcomed guidance for investments by foreign investors in US real property interests.

The 2022 Annual Tax Act, which was passed by the German Federal Council (Bundesrat) on 16 December 2022 (Federal Law Gazette I 2022, 2294), will also result in amendments to the German Investment Tax Act. The aim of the amendments is to prevent a German special investment fund (Spezial-Investmentfonds) from losing its tax transparent status under German tax law when generating revenue from the production of renewable energies (cf. Explanatory Memorandum to Section 26 number 7a – NEW – Investment Tax Act). Whether this goal will be achieved is doubtful in view of the framework of the new regulation. Overall, however, the amendments also result in notable changes to the taxation of Spezial-Investmentfonds. In the future, the trade tax provisions of Section 15 of the Investment Tax Act will also apply to Spezial-Investmentfonds and thus these may also be subject to German trade tax. The general trade tax exemption of Section 29 (4) of the Investment Tax Act is no longer available to Spezial-Investmentfonds.

In addition, there is a small but important change in the capital gains tax refund options for Spezial-Investmentfonds. These will now be able to apply for a refund under Section 11 of the Investment Tax Act via the new Section 29 (1) of the Investment Tax Act.