Germany: Amendment to the withholding tax relief procedures for foreign investment funds - update
Further to Announcement D21027, Clearstream Banking1 informs customers that effective
31 December 2022
any application for the reversal of overpaid tax, via post-payment disclosure of relevant holdings for already registered fund status certificates, will no longer be possible via Clearstream Banking.
No reduced taxation can be granted for customer’s omnibus accounts as of 1 January 2023. Any tax refund request must be addressed directly to the Federal Central Tax Office (Bundeszentralamt für Steuern; BZSt).
Background
Previously, customers holding securities in their third party omnibus accounts on behalf of a foreign investment fund who obtained and provided a fund status certificate for classification of the fund pursuant to § 1 InvStG, the German capital gains tax (Kapitalertragsteuer; KESt) was reduced to 15% at source in case customers provided an instruction to disclose the fund company and the relevant holdings of the fund company per single income payment to CBF 30 calendar days after the record date of the taxable income event latest.
This type of post-payment adjustment is, according to the latest circular from the Ministry of Finance, considered a tax refund. Tax refunds for foreign investment funds can, according to the referenced Investment Tax Act (§ 11 Absatz 1 Satz 3 InvStG), only be granted by the Federal Central Tax Office (Bundeszentralamt für Steuern; BZSt).
Impact on customers
If customers hold securities on behalf of certified foreign investment funds in a standard omnibus account (without standing instruction):
In accordance with the above-mentioned bill and the referenced circular of the Federal Ministry of Finance, any application for the reversal of overpaid tax, via post-payment disclosure of relevant holdings for already registered fund status certificates of the respective foreign investment funds will no longer be possible via Clearstream Banking AG (CBF). Consequently, full tax will be withheld by CBF.
Any tax refund request must be addressed directly to the Federal Central Tax Office (Bundeszentralamt für Steuern; BZSt)
As of 1 January 2023, reduced taxation will only be granted if customers segregate holdings of certified foreign investment funds in dedicated omnibus accounts with standing instructions.
Until 31 December 2022, CBF will process tax adjustments based on customer per-payment instructions to disclose the fund company (identified by the Ordnungsnummer) and the relevant holdings of the fund company within 20 business days after the record date of the taxable income event, provided the original fund status certificate was recorded before the taxable income payment became due and customer did send complete instructions on time, using the existing Upload Beneficial Owner List functionality.
Certification requirements if customers hold securities on behalf of certified foreign investment funds in accounts with reduced tax rate (standing instruction):
As of 1 January 2023, it is still possible to get a reduced taxation for entitled certified foreign investment funds via CBF. This is applicable to customer accounts with standing instructions holding exclusive positions in taxable German securities on behalf of certified investment funds.
Customers must provide:
- A Standing Instruction, available in the Market Taxation Guide.
- The original fund status certificate needs to be in place at CBF before the taxable income event is due to be paid. As announced previously, if the fund status certificate is not available to CBF - that is, the party obliged to pay the tax at the time the investment income is received -, the tax must be withheld and paid in full by CBF.
- If a customer cannot provide a valid fund status certificate for all positions on the account with a reduced tax rate of 15% by the time of income payment, the respective position must be transferred to an omnibus account without standing instruction before the taxable income payment becomes due.
- An instruction to disclose the fund company (identified by the “Ordnungsnummer”, the serial number issued by the competent tax authority) and the relevant holdings of the fund company per single income payment to get taxation at a reduced rate of 15%. Complete information must be provided to CBF 30 business days after the record date of the taxable income event latest, using the existing Upload Beneficial Owner List functionality.
If a correct per-payment certification disclosing the entirety of the fund companies and respective holdings is not provided within 30 business days, Clearstream Banking will reverse the original payment and repay applying full tax deduction. The account must not hold uncertified holdings at any given time.
In case the customer should not be able to adhere to all certification requirements, CBF reserves the right to cancel the beneficial account status and apply full tax deduction on future income payments.
As outlined before, the original fund status certificate of the foreign investment fund needs to be in place at CBF before the taxable income event is due to be paid. To avoid delay of certificate recording, customers are reminded to send the fund status certificates to the following address:
Clearstream Banking AG
Attn: Tax Support Frankfurt - OSF
D-60485 Frankfurt am Main Germany
Other tax certification requirements remain unchanged as described in the Market Taxation Guide.
Please note that there is no change of service for investment funds subject to full company tax rate (“unbeschränkt körperschaftsteuerpflichtig”) in Germany. Upon customer instruction CBF will partially refund withheld tax in accordance with the investment tax act (§7 (5) InvStG). However, CBF cannot exempt investment funds from taxation in accordance with §§ 8 to 10 InvStG.
Further information
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
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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.