Changes due to the German Investment Tax Act Reform - update IV

31.05.2018

Note: This announcement originally published on 15 December 2017 was further updated with changes in the pricing section. Changes are highlighted.

Further to our Announcement D17047, dated 12 September 2017 regarding the implementation of the new German Investment Tax Act “Investmentsteuergesetz; InvStG”, Clearstream Banking AG1 informs customers in detail about the impact on tax instructions, requirements for tax reclaim processing and the German tax voucher application process.

The new German Investment Tax Act entered into effect on

1 January 2018

and significantly changed the taxation of dividends and similar income from investments in German equities, participation rights and convertible bonds held by foreign investment funds.

Situation before 2018

As the last domestic paying agent, CBF is obliged to withhold tax on income payments to non-German CBF accounts. CBF identifies relevant payments to customers based on the foreign trade directive code (Außenwirtschaftsverordnungs-Meldestatus; AWV) on the customer's deposit account. Customers with AWV country = 004 (Germany) receive the dividend payment gross.

German income payments paid to a foreign investment fund are subject to 26.375% withholding tax (Kapitalertragsertragsteuer; KESt) and solidarity surcharge (Solidaritätszuschlag; SolZ). For all non-German CBF accounts (AWV country = 2) 25% KESt and 5.5% SolZ of the KESt amount are deducted for German dividends (event type 120), income of participation rights (event type 126) and convertible bonds (event type 110) and for cash distributions (event type 121) and distributions of tax liquidity (event type 127) of German funds. The KESt amount is calculated based on the taxation base (parts of taxation base for event type 121 and 127).

Dividends paid to a foreign investment fund pursuant to § 1 “InvStG”

Under the new act, if the foreign investment fund obtains and provides a Fund Status Certificate for classification of the fund pursuant to § 1 InvStG, the German KESt will be reduced to 15% at source irrespective of the location of the fund. If the Fund Status Certificate is submitted after the payment date of the event the overpaid KESt amount (11.375%) can be reclaimed within a period of 18 months. The Fund Status Certificate must be requested from the German Tax Authorities.

Future principles applied in CBF

From 1 January 2018 no KESt and SolZ are deducted by CBF for fund distributions (event type 121) of German funds if evidence is provided that the fund is an investment fund pursuant to § 1 InvStG or a special investment fund pursuant to § 53 InvStG. The fund distribution will be announced by Wertpapier-Mitteilungen (WM) with ED234 = 1 (public fund) or 3 (special investment fund). For funds not certified accordingly and the distribution announced with ED234 = 6, the current tax deduction logic is applied; if no taxation base parts are delivered and the income amount is taken as the taxation base.

Distributions of tax liquidity (TA127) will no longer be processed. Exemptions that still can take place in 2018 are distributions of tax liquidity that are due to corrections or income with fiscal payment date prior to 1 January 2018.

Dividends and similar income in German equities, participation rights and convertible bonds, held by a fund for their clients via a non-German account can be processed by CBF at the reduced tax rate 14.218% KESt standard rate, if evidence is provided (status certificate) for classification of the fund as a fund pursuant to § 1 InvStG or a special investment fund pursuant to § 53 InvStG.

Under the new act, if the foreign investment fund obtains and provides a “Fund Status Certificate” including special investment funds not opting for transparency pursuant to § 30 InvStG the German KESt will be reduced to 15% (KESt standard rate of 14.218% plus a SolZ of 5.5% of the standard rate) at source. Foreign investment funds with tax-privileged German or comparable foreign investors or special investment funds opting for transparency may even be able to obtain full reclaim for this specific investor type or individual tax rates on end-investor level of German KESt if certain formal requirements are met. One of the requirements will be proof of the minimum holding period of 45 days over the dividend entitlement date pursuant to § 36a German Income Tax Act (Einkommenssteuergesetz; EStG).

Note: Until further notice, CBF will not be in the position to offer services for full reclaim of German KESt (for tax-privileged German or comparable foreign investors, for example, churches, non-profit organisations, foundations, corporations under public law) or consideration of individual tax status of end investors (for special investment funds opting for transparency pursuant to § 30 InvStG).

This has the consequence that CBF cannot consider the Funds Status Certificate provided by special investment funds opting for transparency pursuant to § 30 InvStG and no tax reduction can be granted. Payments must be executed by CBF with the full tax rate of 26.375%.

End investors must reclaim the tax exemption individually from the local tax authority (Betriebsstätten-Finanzamt) of CBF:

Finanzamt Wiesbaden I
Dostojewskistraße 8
D-65187 Wiesbaden
(CBF Tax-ID / Steuernummer: 040 220 13205)

Note: Reclaims based on a Double Taxation Treaty (pursuant to §50d EStG) will be untouched and forms must be forwarded via CBF or directly to Federal Central Tax Office (Bundeszentralamt für Steuern; BZSt): Bundeszentralamt für Steuern, D-53221 Bonn. For more information, please refer to Announcement A16051 or the Market Taxation Guide Germany.

Processing of tax reductions for funds

The tax reduction is processed based on a breakdown of the entitled holding on a non-German account. The tax reduction can be processed at payment date of the event (tax relief) or up to 18 months afterwards (tax refund). A request is submitted for an account, fund, reduced tax rate and event. It is foreseen to set up a request for tax reduction via the existing process of the BO Upload application.

Customers must provide the following information when requesting a tax reduction (tax breakdown):

  • CBF account number;
  • ISIN of the fund/ Ordnungsnummer mentioned in the Tax Status Certificate;
  • Nominal per fund;
  • Reduced KESt rate (14.218%);
  • ISIN of the income event;
  • For requests submitted before entitlement/record date:
    • BID;
    • Payment date for event type 110.
  • For requests submitted after entitlement/record date:
    • Event type;
    • KADI-LAUF-NR.

Important note: Before the May Release 2018, customers must provide, at the latest with the first upload of tax breakdowns, an original Fund Status Certificate for each fund company requesting a tax reduction. For each Fund Status Certificate customers must inform CBF in the cover letter to which accounts the Fund Status Certificate should be linked and must state the ISIN of the fund (mentioned in line 8 and potentially in lines 35 and 37 of the application form to request by BZSt the Funds Status Certificate).

With the May Release 2018, CBF will change the identification and validation of investment funds in possession of a Fund Status Certificate. To request a German tax voucher on income payments with already reduced tax rates, customers must provide, together with the tax reduction instruction, the Ordnungsnummer from the Funds Status Certificate instead the ISIN of the fund (mentioned in line 8 and potentially in lines 35 and 37 of the application form to request the Funds Status Certificate from the BZSt).  

After the May Release 2018, the information about the ISIN of the fund is no longer required, instead customers must use the Ordnungsnummer.

Customers can upload data required for tax reduction in a CSV file via the BO Upload application. The updated CSV file format rules are attached below. BO Upload includes a validation of the fund ISINs/ Ordnungsnummer against reference data indicating the eligibility for tax rate reduction (14.218%).

Without the information of the ISIN (or as from the May Release 2018 the Ordnungsnummer) of the fund no tax reduction can be processed by CBF.

The event type and BID are provided in field 20C::CORP// of the MT564 and MT566, the KADI processing number is reported in the additional text 70E::ADTX// of the MT564 REPE on record date and in the MT566. The KADI processing number will also be printed in the summary of income and fees KD110.

Before the request is executed, a validation based on WM master data and Group Deutsche Börse data is performed, to check if the fund is entitled for the reduction at the requested  KESt rate.

Uploads can be sent to CBF at the earliest 14 business days before the Ex-Date (tax relief) of the upcoming event and up to 18 months after the Ex-Date (tax reclaim).

Uploads will be processed immediately depending on the quality of the tax breakdowns transmitted to CBF.

Note: CBF cannot guarantee to process tax breakdowns for tax relief on value day of the income event. 

The Fund Status Certificate must be sent to:

Clearstream Banking AG
attn. Tax Services Frankfurt

Mergenthaleralle 61
D-65760 Eschborn

To avoid rejection of the German Tax Breakdown CSV file, please observe the following guidelines:

  • Use a decimal point “.” as a separator for fractions and decimals, not a comma “,”.
  • Special characters such as !,”,#,$, / and spaces must not be used.
  • Mutated vowels can be used, that is ä, ö, ü. 
  • Only enter “14.218” in the field “Tax Rate”. The percent sign "%" should not be used.
  • Only use the provided template, do not use another CSV file, add new columns, delete columns or rename headers.
  • Do not insert blank lines or comments and notices in the CSV file.
  • The uploaded file must be a CSV file and not an Excel file renamed csv.
  • CBL customers must complete their File Upload Information with their five-digit CBL account number and tick Creation, but must enter account number “7201” in the CSV file.
  • All requests for Tax Reduction must be for the same dividend year. 

Note: Any rejected uploaded requests for Tax Reduction will be charged.

Pricing

Effective 1 July 2018, the applicable fees are available in section 3.2 Withholding tax services of the latest Clearstream Banking Fee Schedule.

Bookings for tax reduction

Before the booking of the tax reduction is executed, the nominal of the request is checked against the entitled nominal at entitlement/record date. Settled market and reverse claims are considered. For the booking of a tax reduction, for each request, based on the nominal of the request a cancellation booking about the dividend amount with deduction of  KESt and SolZ based on the standard  KESt rate of 25% plus SolZ is processed. A new booking of the dividend amount is executed with the reduced KESt rate of 14.218% plus SolZ or tax-free (Technically a full tax exemption will be implemented, but CBF is not in the position to support this until further notice).

For each tax relief or tax refund instruction the following key processes are performed:

  • Cancellation booking based on the nominal of the request for tax reduction on the dividend amount with deduction of KESt and SolZ with a KESt rate of 25%
  • New booking based on the nominal of the request onthe dividend amount with deduction of KESt and SolZ with a KESt rate of 14.218% (15% including SolZ) or tax-free (Technically a tax exemption will be implemented, but CBF is not in the position to support this).
  • Bookings are processed in the NTP cycle at payment date of the event (tax relief) or in the next NTP cycle (tax refund).
  • Validation of the tax contingent.

Example: Non-German account, nominal 1000, dividend EUR 1

Requests for tax reductions:

Nominal

Depository owner (fund)

Withholding Tax “KESt” rate

100

DE0009753673 (ISIN of the fund/ Ordnungsnummer)

14.218%

200

DE000A0BKJ26 (ISIN of the fund/ Ordnungsnummer)

14.218%

300

DE000A0BKJ26 (ISIN of the fund/ Ordnungsnummer)

0%a

a. Technically a tax exemption was implemented, but CBF is not in the position to support this (please see above).

Booking of dividends:

Nominal

Gross amount

KESt

Solz

Net amount

1.000

EUR 1,000.00

EUR 250.00

EUR 13.75

EUR 736.25

Booking of tax reductions:

Nominal

Gross amount

KESt

Solz

Net amount

Type of posting

Depository owner

100

100.00

25.00

1.37

73.62

Debit

DE0009753673 (ISIN of the fund/ Ordnungsnummer)

100

100.00

14.22

0.78

85.00

Credit

DE0009753673 (ISIN of the fund/ Ordnungsnummer)

200

200.00

50.00

2.75

147.25

Debit

DE000A0BKJ26 (ISIN of the fund/ Ordnungsnummer)

200

200.00

28.44

1.56

170.00

Credit

DE000A0BKJ26 (ISIN of the fund/ Ordnungsnummer)

300

300.00

75.00

4.12

220.88

Debit

DE000A0BKJ26 (ISIN of the fund/ Ordnungsnummer)

300

300.00

300.00

0.00

300.00

Credit

DE000A0BKJ26 (ISIN of the fund/ Ordnungsnummer)

Cancellation and re-run

If an event is cancelled and a re-run processed, executed bookings for tax reduction are reversed and newly processed with the re-run.

Reverse of single bookings for tax reduction

Tax instructions with status ”Processed” can be reversed. In this case a reverse cancellation booking based on tax rate 14.218% KESt plus SolZ or tax-free (Technically a tax exemption will be implemented, but CBF is not in the position to support this) and a new booking with deduction of 25% KESt plus SolZ is generated.

Market and reverse claim process

The market claim and reverse claim process and the booking of tax credits based on the daily tax adjustment calculation remain unchanged (please refer to CBF Compensation Handbook).

Tax credits are only booked for the entitled nominal without tax reductions, that is, the tax contingency is processed with 25% KESt rate.

Example: For the previous example, when a sale in amount of 500 nominal takes place during the compensation period, a tax credit will only be processed for a nominal of 400:

1.000

Entitled nominal before tax reductions

 - 600

Sum of nominal of tax reductions

= 400

Tax contingent processed with KESt rate 25%

Details tax credit calculation:

Nominal

KESt

 

Solz

Cash amount

 

Contingent

1.000

EUR 250.00

 

EUR 13.75

EUR 736.25

Original dividend

1.000

  -600

 

 

 

 

Tax reduction

   400

  -500

 

 

 

EUR -500.00

Market claim debit

   400

   400

EUR 100.00

 

EUR 5.50

EUR 105.50

Tax credit

       0

Note: If the information of the transparency option is not transported in the multi-level depository chain to the German tax agent, the Fund Status Certificate was considered and CBF is aware of the transparency option with request for issuing a German Tax Voucher, CBF must cancel the 15% payment, do a re-run on 26.375% and issue the tax voucher following the new requirements (this information is not published by the German Ministry of Finance yet).

Tax vouchers

Upon request, tax vouchers are provided for funds, whereby a validation is processed against the nominal of tax reductions.

CBF assumes that there will be no change to the official template for Tax Voucher for payments before 1 January 2018. The requirements for issuance of a Tax Voucher to a CBF customer for their own holdings or holdings of their clients remain unchanged (please refer to Announcement A16051, dated 29 March 2016).

Note: If the information of the transparency option was not transported in the multi-level depository chain to the German tax agent, the Fund Status Certificate was considered and CBF is aware of the transparency option with request for issuing a German Tax Voucher, CBF must cancel the 15% payment, do a re-run on 26.375% and issue the tax voucher following the new requirements.

As mentioned above CBF will not be in the position to offer services for full reclaim of German KESt or consideration of an individual tax status of end investors for special investment funds opting for transparency pursuant to § 30 InvStG. This has the consequence that CBF cannot consider the Funds Status Certificate provided by special investment funds opting for transparency and no tax reduction can be granted. Payments must be executed by CBF with the full tax rate of 26.375%.

Note: The German Ministry of Finance is due to provide clarification on open questions in writing to the market. The Ministry of Finance published on 15 December 2017 with Circular „Kapitalertragsteuer; Ausstellung von  Steuerbescheinigungen für Kapitalerträge nach § 45a Absatz 2 und 3 EStG; Neuveröffentlichung des BMF-Schreibens“ with reference GZ IV C 1 - S 2401/08/10001 :018 DOK 2017/1044120 details for new tax coucher templates. Currently, CBF is not in the position to issue tax vouchers (new template III) for payments after 31 December 2017. CBF will inform customers when a new tax voucher (template III) is available.

Standing instructions

CBF is analysing if standing instruction in form of a segregated account can be offered to customers. CBF is in discussion with legal advisor and tax authorities to clarify when customers declare that segregated account will be used only for certified fund companies and all original Fund Status Certificates are provided to CBF before the first settlement in such an account if this practice is accepted by the local tax authority. CBF is also investigating what kind of reporting details will be required by local tax authorities and when.

It is foreseen that for segregated accounts all income payments subject to German withholding tax will be paid automatically with the reduced tax rate of 15% (KESt standard rate of 14.218% plus a SolZ of 5.5% of the standard rate) to customers. Market claims will be calculated and executed automatically with the reduced tax rate too. CBF is under discussion with the tax authorities about when (after the end of market claim period, at the same time as the request to issue a German tax voucher or at the end of the year of payment) customers must provide a break down to disclose the name of the fund company (via the Ordnungsnummer) per single income payment and the relevant holdings of the fund company.

Processing of tax reclaims resulting from double taxation treaties (DTT) at the German Federal Central Office

The requirements for processing tax reclaims resulting from DTT of the German Federal Central Office remain unchanged (please refer to Announcement A16051, dated 29 March 2016).

Reporting

SWIFT

  • An MT564 is sent for each tax reduction booking at entitlement date/refund processing date:
    • Cancellation booking - MT564 CANC;
    • New booking - MT564 REPE;
  • An MT566 is sent for each tax reduction booking after cash booking of the processed relief or refund:
    • Cancellation booking - MT566 REVR;
    • New booking - MT566 NEWM.
  • Process indicator is included as :22F::ADDB//TAXR.
  • Under the qualifier /RELA the unique number of the tax relief or refund instruction is reported.
  • In the additional text :70E::ADTX// “TAX RELIEF” or “TAX REFUND” the ISIN of the fund is reported. After the May Release 2018, the Ordnungsnummer will be reported.

CASCADE Online

  • Amounts for bookings for tax reduction are shown under KVGI SG as follows:
    • B = Tax reduction for tax reliefs (“Steuerbefreiung”);
    • E = Tax reduction for tax refunds (“Steuererstattung”);
    • G = Tax credits (“Steuergutschrift”).
  • Amounts for bookings for tax reduction are also shown in KVGI UE.

KADI lists

Bookings for tax reduction are reported in KD110.

  • In the Short Position Report (KD127) and the Tax Credit Report (KD184) the fields “position nominal” and “balance nominal” only show the nominal  KESt reductions.

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1. This Announcement is published by Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.