On November 22, 2012, the ECJ (C-600/10) held that the European Commission had not substantiated that Germany taxes dividends and interests of foreign pension funds in a discriminatory way compared to German pension funds. The judgement was surprising: Whereas in the infringement procedure against Finland the ECJ recently held (8 November 2012, C-342/10) that Finnish pension funds are preferentially taxed compared to foreign funds, the European Commission failed to demonstrate the same in the infringement procedure against Germany. The answer to this result: In the case against Germany, the Commission tried to argue that specific deductions are allowed for German pension funds only. The Commision then failed to prove this. The argument against Finland was rather simple in that the Commission argued in this case that Finnish pension funds paid no tax compared to foreign pension funds which paid taxes on Finnish interest and dividends. This shows that too complex arguments can ruin your case. With a simpler approach like in the Finnish case, we think the Commision would have won the argument of discrimination.

With regard to the 2013 Annual Tax Act, it has been recommended to the German Federal Council by its own Committees to convene the Mediation Committee, a joint legislative body comprising equal numbers of members from the German Parliament and the German Federal Council.

After several amendments suggested by the German Federal Council did not make it into the legislative draft of the 2013 Annual Tax Act, the Federal Council will again debate the draft on November 23, 2012. The Federal Council's position statement will be based on recommendations by its Committees issued on November 13, 2012. The Committees recommend convening the Mediation Committee, inter alia, to introduce tax liability for income from hybrid financial instruments, tax liability for dividends and capital gains on profit sharing of widely held stock (<10%) as well as rules for the avoidance of tax structuring models using so-called real estate transfer tax (RETT) blocker partnerships.

Germany is currently busy implementing the Alternative Investment Fund Managers Directive 2011/61/EU ("AIFMD") into German domestic law. In July 2012, the German legislator published an initial discussion draft of the legislation implementing the AIFMD into domestic law, the German Investment Code (Kapitalanlagegesetzbuch, or "KAGB"). This initial discussion draft of the German Investment Code went further than required by the AIFMD (see our Client Newsletter dated August 6, 2012), particularly with regard to the application of the German Investment Code to non-EU alternative investment funds (AIF) and non-EU alternative investment fund managers (AIFM).

The initial discussion draft of the KAGB has now been revised. This Newsletter addresses the main changes made to this revised draft of the KAGB.