German Tax Legislation Discriminates Against Foreign Fund Providers, Proves Anti-Competitive
Washington, DC, December 22, 2002 - Tax legislation currently under consideration in the German Parliament would impose a tax on capital gains that presently are tax free, and would levy the tax in such a way that significantly favors investments in German funds as opposed to investments in non-German funds. In a recent comment letter, the Institute notes that the European Commission has initiated an infringement procedure against Germany, and urges the Commission to consider whether action could be taken against the new law before it is scheduled to take effect in February 2003.
As proposed, the new law would provide two distinct advantages to German funds over non-German funds. First, German shareholders in German funds would include in income only half of their gains—whether attributed to them from their fund investments or from the disposal of fund shares—under the “half-income taxation method”; conversely, German shareholders in non-German funds would include in income the full amount of their gains. Second, shareholders in German funds would be permitted to deduct taxes already paid when calculating gains upon the redemption of their interests in the fund. This deduction would not be available to shareholders in non-German funds.
The Institute expressed concern that this treatment is clearly discriminatory and could effectively eliminate competition by non-German funds in Germany. The Institute also notes that these measures may be contrary to European law.