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.

Investment funds holding assets affected by sanctions due to the Ukraine war need to solve problems caused by their lack of liquidity. One solution is to separate the illiquid assets into so-called side pockets. With regard to the tax consequences of the creation of side pockets, the German Federal Ministry of Finance (BMF) has published its draft for equitable tax relief regulation. In our view, the BMF does not go far enough.

In our beinformed of 15 December 2020, we already reported on the German Fund Jurisdiction Act, the objective of which was to make Germany more attractive as a fund location through a series of tax measures. One of these measures was the extension of the circumstances for a finding of VAT-exempt management under § 4(8)(h) of the German Value Added Tax Act (Umsatzsteuergesetz) of venture capital funds. This measure came into force on 1 July 2021, but without a definition of venture capital funds. The tax authorities have now made up for this omission almost a year after the amendment came into force with a letter by the German Federal Ministry of Finance (Bundesfinanzministerium). The definition is based on venture capital funds as defined in the EU Venture Capital Funds (EuVECA) Regulation. In addition, further requirements are mentioned in order to benefit from the advantage of VAT-free management.