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Fund Taxation Alert 2019-05

Fund Taxation Alert 2019-05

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WHT reclaims in Germany — new opportunities further to the CJEU’s car toll decision

On 18 June 2019, in its decision in Case C-591/17 Austria/Germany, the Court of Justice of the European Union (CJEU) ruled that the German car toll (PKW-MAUT) constitutes an infringement of EU law.

In its decision, the CJEU states that the levy would be discriminatory due to the tax burden which, when using German motorways, practically only would apply to vehicles registered in EU countries other than Germany. The CJEU considered that such a rule constitutes a restriction on (1) the general principle of non-discrimination, (2) imports and (3) the freedom to provide services.

Development and news

This decision could be an important signal for potential withholding tax (WHT) reclaims based on EU law filed on behalf of investment funds after the entry into force of the revised German Investment Tax Act (GTA) as of 1 January 2018.

This is mainly due to the fact that the discrimination entailed in the German car toll legislation is comparable to the discrimination of non-German investors under GTA.

In the present judgment, the infringement of EU law is due to the fact that German car owners will pay an infrastructure tax for the use of German motorways. In a second step, the infrastructure tax will be deducted from the motor vehicle tax, thus representing no additional overall tax burden on German car owners. The German Car Toll was intended by the German politicians as a “Foreigner Car Toll”. By contrast, non-German car owners using German motorways are subject to the German car toll without receiving any compensation.   

A similar compensation mechanism applies under GTA. To amend the obvious infringement of EU law caused by the exclusive tax exemption for German resident investment funds under the old GTA (§ 11 GTA prior 2018), the German law maker introduced a tax burden on fund level (§ 6 GTA = Fund Corporation tax for all German funds) and a compensation for resident investors (§ 20 GTA = partial tax exemption for German resident investors). According to § 6 GTA, German-source dividends distributed to investment funds (regardless of their country of residence) are taxed through the levy of a 15% WHT. Under the GTA mechanism, German investors benefit from a partial on their investment fund income to compensate the 15% WHT suffered by the investment fund. In the light of the German toll car decision, we consider that the GTA compensation mechanism constitutes a restriction on the free movement of capital.

Investment funds that predominantly have non-German investors should therefore file protective claims in order to safeguard the rights of the said investors to benefit from a reimbursement of WHT.

Under German procedural law, the fund could file claims by allowing funds to give an estimation of the amounts of suffered WHT that could be attributed to non-German investors.

The way forward

Further to the introduction of GTA, we consider that the legislation is still not compliant with EU law. This is especially the case when the fund has non-German investors. Taking this into account, KPMG recommends to closely monitor the funds tax situation in Germany by following the below approach when it comes to WHT reclaims:

  • Analyze your investment funds’ current WHT suffered in Germany (i.e. 15% or 26.375%). In case a status certificate has been received, 11.375% WHT could be reclaimable under domestic law.
  • File a WHT reclaim to bring the taxes down to 0, if the fund has a majority of non-German investors.
  • As the time limitation period to reclaim taxes under GTA has been reduced (see § 11 sec. 2 GTA), we recommend to file the claims on a yearly basis.

KPMG can perform a cost-benefit analysis and assist you through the entire reclaim process.

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