CJEU declares German flat tax on ”non-transparent“ investment funds as

16 October 2014
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CJEU declares German flat
tax on ”non-transparent“
investment funds as
incompatible with Union Law
On 9 October 2014, the Court of Justice of the European Union (CJEU) rendered its
decision in a German case, van Caster (C-326/12), addressing the German flat tax
on “non-transparent” investment funds. Investment funds are deemed to be “nontransparent” if they do not comply with the German publication and notification
rules of the Investment Tax Act (ITA). In such a case, a flat tax amounting to at least
6% of the last fixed redemption price of the investment units is levied.
In the instant case, two Belgian nationals resident in Germany held units in nonGerman investment funds held on deposit with a Belgian Bank. The investment
funds did not comply with the notification and publication requirements of Section
5 of the ITA, which applies to both domestic and foreign investment funds. Under
the German ITA, a transparent taxation of the funds required among others that an
investment fund informs its investors in detail about the proceeds of the funds and
its composition and publishes this information in the electronic bulletin of official
announcements within four month after the close of the business year where the
proceeds are or are deemed to be received, accompanied by a certificate issued by
a person authorized to provide professional assistance in tax matters or of an official
recognized audit agency. Foreign investment funds needed to comply with additional
rules. Since the investment funds did not publish any information in the electronic
bulletin, the tax authorities charged the 6% which is also known in practice as a
“punitive tax.”
In the proceedings before the CJEU, Germany defended its position by arguing that
the publication and notification requirements are applicable to both domestic and
foreign investment funds, hence, no discrimination existed. Further, these rules
were, in the view of the German Tax Authorities, justified as they were necessary for
ensuring an effective tax collection and a uniform taxation of all (German) taxpayers.
The Court did not follow Germany’s
line of argument. Since most of the
non-German investment funds fall
under the non-transparent taxation
of Section 6 of the ITA, the Court
saw a “covert” discrimination.
Further, in the CJEU’s view, the rule
went too far in what was necessary
to attain the objectives brought
forward by Germany, as in principle
the taxpayer must have the chance
to present documentation to the
tax authorities according to which
the tax authorities are able to
establish the right tax. An excessive
administrative burden as a result of
this possibility cannot be claimed
by the German tax authorities.
The Court requested from the
tax authorities to determine the
content, the form and the degree
of detail which the information
submitted by the taxpayer must
satisfy.
Impact
The decision should give investors
in foreign funds which are not
compliant with the German
notification and publication rules
the possibility provide the tax
authorities in each individual
case with documentation on nontransparent funds with respect to
the taxable income derived through
the investment units. However, it
remains to be seen how strictly
the tax authorities will apply the
documentation requirements.
For fiscal years prior to 2004,
the German Federal tax court
has already held that the flat tax
being in place during these years
contradicted the Free Movement
of Capital Principle, since that rule
explicitly covered non-German
investment funds only. The Court
referred the question to the CJEU
whether also in third country
situations Union Law protects
investors’ non-EU-investment
funds.1
Endnotes
1
2
German Federal Tax Court of 6 August 2013, VIII R 39/12; CJEU case reference: C-560/13, Wagner-Raith.
Global Tax Alert EU Competency Group
For additional information with respect to this Alert, please contact the following:
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
• Dr. Klaus von Brocke, EU Tax Services
+49 89 14331 12287
• Stefan Mueller, EU Tax Services
+49 89 14331 16635 [email protected]
[email protected]
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt
• Tim Hackemann, ITS/EU Law +49 6196 996 21718 [email protected]
Global Tax Alert EU Competency Group
3
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