For immediate release: Tuesday 3 December 2002

PROPOSED GERMAN TAX LAW DISCRIMINATES AGAINST NON-GERMAN INVESTMENT FUNDS

Together with managers and their representative associations from throughout Europe, the IMA and eleven major investment management firms, active in the German investment funds market, are seeking to reverse proposed discriminatory legislation against non-German investment funds in Germany.  

The German Government has announced new legislation which as well as putting investors in funds at a disadvantage against direct equity investors, will amplify the current law which puts German domestic funds at a major advantage over ‘foreign’ funds (non-German funds marketed into Germany from elsewhere in Europe).  

If the proposed legislation were to become law, it would act against the commitment of EU Governments to liberalise the single market for financial services in Europe and would contravene Germany’s EU obligations.  It would also be against the interests of German investors, reducing choice and competition in the investment funds market. 

Sheila Nicoll, Deputy Chief Executive of the IMA, commented: 

“The proposed law is scheduled to come into force with effect from February 2003.  Although the German Government has undertaken to review the discriminatory measures in 2004, this will be too late.  Just one year of this discriminatory regime would have a seriously detrimental effect on businesses which now operate in Germany.   We urge the German Government to use this time to meet their obligations relating to the single market in Europe by removing this overt discrimination.” 

Previously capital gains at the fund and investor level were exempt from tax, now the proposals call for taxation at both levels.   Moreover, foreign funds will be taxed at the full amount taxable, whilst domestic funds will be taxed on only half the amount.  

Current legislation is as follows: 

• Investors in German funds are taxed on half of the distributions that are derived from dividend income, paid or accumulated by the fund.

• Investors in non-German funds are taxed on all of any distributions that are derived from dividend income paid or accumulated by the fund.

German investors can take credit for withholding taxes suffered by a domestic fund, but not for those suffered by a foreign fund. 

The following proposed legislation would be imposed in addition to the above: 

1.      When funds and direct investors sell equities:

• Individuals investing in equities via a German fund will be liable to tax at their marginal rate (max of 47% in 2003) on half of the gains achieved from the sale of equities by the fund

• Individuals investing via a non-German fund will be liable to CGT at their marginal rate (max of 47% in 2003) on all realised gains from the fund’s underlying equities.

• Individuals investing directly in equities will be liable to CGT of 15% on 50% of the gain achieved from the sale of equities.

2.      When investors sell their fund holdings:

• Investors will be taxed at 15%, but only on half of the gain derived from a German fund’s disposal of equities

• Investors will be taxed at 15% on the entire gain derived from a non-German fund’s disposal of equities.

• Relief will be available for investors in German funds for tax paid while the fund was being held.  But it is not clear whether investors in non-German funds will be afforded the same protection.

This issue has been drawn to the attention of the European Commission by FEFSI, the European Federation of Investment Funds as well as by the IMA.  Together with its sister associations from throughout Europe, the IMA will use this opportunity to put pressure on the German Government to amend the proposed legislation in order to remove the discrimination.  Press Release Attached.

For further information, please contact

Sheila Nicoll, Deputy Chief Executive, IMA                                                 020 7831 0898

Clare Arber, Head of Communications, IMA                                                020 7831 0898

 Notes to Editors: 

1. The eleven firms involved are; Fidelity Investment Services Ltd, Franklin Templeton Investments, Gartmore Investment Management Plc, Goldman Sachs Asset Management Europe, Henderson Global Investors, P Morgan Fleming Asset Management Ltd, Jupiter International Group Plc, M&G International Investments Ltd, Merrill Lynch Investment Fund Managers Ltd, Schroders Investment Management Ltd, Threadneedle Investment Services Ltd

2. The trade associations involved are: FEFSI, the European Federation of Investment Funds, and in particular the representative bodies from France, Germany, Ireland, Luxembourg, Netherlands and Switzerland where managers are active in offering funds into Germany on a cross-border basis.

3. Proposed legislation – example showing discrimination against non-German funds

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